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Allocative Efficiency and Finance

Andrea Linarello (), Andrea Petrella () and Enrico Sette ()
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Enrico Sette: Bank of Italy

No 487, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies the effect of bank lending shocks on aggregate labor productivity. Exploiting a unique administrative dataset covering the universe of Italian manufacturing firms between 2000 and 2015, we apply the Melitz and Polanec (2015) decomposition at the 4-digit industry level to distinguish the contribution to aggregate productivity growth of: changes in surviving firms’ average productivity, market share reallocation among surviving firms, and firm entry and exit. We estimate the impact of credit shocks on each of these components, using data from the Italian Credit Register to construct industry-specific exogenous credit supply shocks. Only for the 2008-2015 period, we find that a tightening in the supply of credit lowers average productivity but increases the covariance between market share and productivity among incumbents, thus boosting the reallocation of labor. We find no significant effects of credit supply shocks on the contribution made by firm entry and exit. We find that the effects of negative credit shocks on average productivity and reallocation are concentrated in industries with a lower share of tangible capital and collateralized debt.

Keywords: credit supply shocks; labor productivity; allocative efficiency (search for similar items in EconPapers)
JEL-codes: L25 O47 G01 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff, nep-eur, nep-fdg and nep-mac
Date: 2019-04
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