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Do Financial Frictions Matter as a Source of Misallocation? Evidence from Japan

Kaoru Hosono and Miho Takizawa
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Miho Takizawa: Associate Professor, Faculty of Economics, Toyo University

Discussion papers from Policy Research Institute, Ministry of Finance Japan

Abstract: We evaluate the role of borrowing constraints in misallocation overall using a rich plant-level dataset of manufacturers in Japan. We first measure plant-level distortions and estimate the hypothetical TFP gains and plantsize distributions that would be achieved if all plant-level distortions were removed. Then we develop a dynamic general equilibrium model incorporating borrowing constraints, parameterize it using plant-level information, and estimate the hypothetical TFP gains and plant-size distributions that would be realized if borrowing constraints were removed. Comparing the modelbased counterfactual experiments with the measured misallocation overall, we find that borrowing constraints are a significant, but not a major source of misallocation overall in the manufacturing sector in Japan.

Keywords: Borrowing Constraints; Misallocation; Aggregate Total Factor Productivity (TFP); Plant-size Distribution (search for similar items in EconPapers)
JEL-codes: E22 E44 O16 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2012-12
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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