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Capital-Reallocation Frictions and Trade Shocks

  • Andrea Lanteri
  • Pamela Medina
  • Eugene Tan
American Economic Journal: Macroeconomics
vol. 15, no. 2, April 2023
(pp. 190-228)
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Abstract

What are the short-term effects of an import-competition shock on capital reallocation and aggregate productivity? To address this question, we develop a quantitative model with heterogeneous firms and capital-reallocation frictions. We discipline the model with micro data on investment dynamics of Peruvian manufacturing firms and trade flows between China and Peru. Because of large frictions in firm downsizing and exit, an import-competition shock induces a temporary aggregate-productivity loss and larger dispersion in marginal products, due to investment inaction and exit of some productive firms. Empirical evidence on the effects of trade shocks on capital reallocation supports the model mechanism.

Citation

Lanteri, Andrea, Pamela Medina, and Eugene Tan. 2023. "Capital-Reallocation Frictions and Trade Shocks." American Economic Journal: Macroeconomics, 15 (2): 190-228. DOI: 10.1257/mac.20200429

Additional Materials

JEL Classification

  • E22 Investment; Capital; Intangible Capital; Capacity
  • E23 Macroeconomics: Production
  • F14 Empirical Studies of Trade
  • L60 Industry Studies: Manufacturing: General
  • O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
  • O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • O19 International Linkages to Development; Role of International Organizations
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