 Zombie lending, labor hoarding, and local industry growthJeff Kin Wai Cheung and Masami Imai Japan and the World Economy, 2024, vol. 71, issue C Abstract: After the bursting of real estate bubbles in 1991, Japanese banks continued lending to unviable firms to conceal problem loans. We revisit Japan’s experience and propose a new mechanism via which banks’ loan-evergreening policy undermines allocative efficiency across industries by focusing on construction and real estate loans. Namely, banks’ continuing support for construction and real estate firms encourages labor hoarding in unviable construction projects. Since construction projects predominantly use low-skilled workers, banks’ loan-evergreening policy in these troubled sectors may depress other low-skilled industries. Based on the industry-level data in each of Japan’s 47 prefectures from 1992 to 1996, we document empirical facts consistent with this hypothesis. On average, low-skilled industries experienced disproportionately slower output and employment growth and more sluggish growth in the number of new establishments in prefectures where the share of bank loans to local construction/real estate sectors increased more after construction boom ended. Keywords: Loan-evergreening; Local industry growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:71:y:2024:i:c:s092214252400029x DOI: 10.1016/j.japwor.2024.101266 Access Statistics for this article Japan and the World Economy is currently edited by Robert Dekle and Yasushi Hamao More articles in Japan and the World Economy from Elsevier |
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