Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection
- (pp. 304-56)
(Complimentary)
Abstract
We develop a tractable quantitative framework to study the productivity effects of financial crises. The model features endogenous productivity, heterogeneous firm dynamics, and aggregate risk. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop triggered by the Russian sovereign default in 1998 confirm the model's main mechanism, as firms born during the credit shortage are fewer but better in terms of idiosyncratic productivity. The quantitative analysis shows that at the end of the crisis, total output is permanently 0.9 percent lower.Citation
Ates, Sina T., and Felipe E. Saffie. 2021. "Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection." American Economic Journal: Macroeconomics, 13 (3): 304-56. DOI: 10.1257/mac.20180014Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E32 Business Fluctuations; Cycles
- F41 Open Economy Macroeconomics
- G01 Financial Crises
- O11 Macroeconomic Analyses of Economic Development
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O33 Technological Change: Choices and Consequences; Diffusion Processes
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