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Economic Resilience: spillovers, courts, and vertical integration

Dimas Fazio, Thiago Silva () and Janis Skrastins

No 531, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We investigate the impact of institutions on the transmission of shocks across firms. Using novel inter-firm wire transfer data, we find that suppliers exposed to natural disasters pass this shock to their customers particularly when the customer's court system is congested. Evidence suggests that congested courts amplify spillovers through potential future holdup problems: customers face frictions both in contracting with new suppliers and in obtaining bank credit. Subsequently, customers seem to vertically integrate the production of affected inputs and obtain liquidity by selling their accounts receivables. Our results highlight the importance of institutions in facilitating economic resilience.

Date: 2020-08
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