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Credit and investment distortions: Evidence from Mexican manufacturing

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  • Meza, Felipe
  • Pratap, Sangeeta
  • Urrutia, Carlos

Abstract

We document a transmission channel from credit conditions to capital accumulation via investment wedges. Using a simple multi-industry model of production and investment, we measure these wedges at the 4-digit industry level from Mexican manufacturing and show that they account for most of the changes in aggregate capital over time. We also find a robust relation between the wedges and financial variables: credit and interest rates, also measured at the industry level.

Suggested Citation

  • Meza, Felipe & Pratap, Sangeeta & Urrutia, Carlos, 2020. "Credit and investment distortions: Evidence from Mexican manufacturing," Economics Letters, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303700
    DOI: 10.1016/j.econlet.2020.109610
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    References listed on IDEAS

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    1. Kaiji Chen & Alfonso Irarrazabal, 2015. "The Role of Allocative Efficiency in a Decade of Recovery," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 523-550, July.
    2. Felipe Meza & Sangeeta Pratap & Carlos Urrutia, 2019. "Credit, Misallocation and Productivity: A Disaggregated Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 61-86, October.
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