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Resource Reallocation and Zombie Lending in Japan in the 1990s

Author

Listed:
  • Hyeog Ug Kwon

    (Nihon University)

  • Futoshi Narita

    (International Monetary Fund)

  • Machiko Narita

    (International Monetary Fund)

Abstract

We investigate how resources were reallocated in Japan during the 1990s, a decade of economic recession, by measuring aggregate productivity growth (APG) using plant-level data of manufacturers from 1981 to 2000. We find that the contribution to APG of resource reallocation deteriorated in the 1990s and became negative during the late 1990s, when a financial crisis occurred. Matched firm-plant data suggest that misdirected lending by banks to failing firms (zombie lending) allowed them to avoid reducing production inputs, especially labor. Our counter-factual analysis using a general equilibrium model with heterogeneous plants indicates that without zombie lending, annual APG would have been higher by one percentage point during the 1990s. (Copyright: Elsevier)

Suggested Citation

  • Hyeog Ug Kwon & Futoshi Narita & Machiko Narita, 2015. "Resource Reallocation and Zombie Lending in Japan in the 1990s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 709-732, October.
    • Handle: RePEc:red:issued:12-232
    DOI: 10.1016/j.red.2015.07.001
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    More about this item

    Keywords

    Japan; Plant-level data; Productivity; Proxy estimation; Resource reallocation; Zombie lending;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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