Resource Reallocation and Zombie Lending in Japan in the 1990s

Hyeog Ug Kwon, Futoshi Narita and Machiko Narita

Review of Economic Dynamics, 2015, vol. 18, issue 4, 709-732

Abstract: We investigate how resources were reallocated in Japan during the 1990s, a decade of economic recession, by measuring aggregate productivity growth (APG) using plant-level data of manufacturers from 1981 to 2000. We find that the contribution to APG of resource reallocation deteriorated in the 1990s and became negative during the late 1990s, when a financial crisis occurred. Matched firm-plant data suggest that misdirected lending by banks to failing firms (zombie lending) allowed them to avoid reducing production inputs, especially labor. Our counter-factual analysis using a general equilibrium model with heterogeneous plants indicates that without zombie lending, annual APG would have been higher by one percentage point during the 1990s. (Copyright: Elsevier)

Keywords: Japan; Plant-level data; Productivity; Proxy estimation; Resource reallocation; Zombie lending (search for similar items in EconPapers)
JEL-codes: E23 E32 G21 O47 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (77)

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DOI: 10.1016/j.red.2015.07.001

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