Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection

Sina T. Ates and Felipe Saffie

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 3, 304-56

Abstract: We develop a tractable quantitative framework to study the productivity effects of financial crises. The model features endogenous productivity, heterogeneous firm dynamics, and aggregate risk. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop triggered by the Russian sovereign default in 1998 confirm the model's main mechanism, as firms born during the credit shortage are fewer but better in terms of idiosyncratic productivity. The quantitative analysis shows that at the end of the crisis, total output is permanently 0.9 percent lower.

JEL-codes: D22 E32 F41 G01 O11 O14 O33 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection (2016)
Working Paper: Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection (2014)
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DOI: 10.1257/mac.20180014

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