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

Author

Listed:
  • Kaoru Hosono

    (Principal Economist, Policy Research Institute, Ministry of Finance Visiting Staff, Gakushuin University Research Institute for Economics and Management)

  • Miho Takizawa

    (Associate Professor, Faculty of Economics, Toyo University)

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.

Suggested Citation

  • Kaoru Hosono & Miho Takizawa, 2012. "Do Financial Frictions Matter as a Source of Misallocation? Evidence from Japan," Discussion papers ron246, Policy Research Institute, Ministry of Finance Japan.
    • Handle: RePEc:mof:wpaper:ron246
    as

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    File URL: http://warp.ndl.go.jp/info:ndljp/pid/10248500/www.mof.go.jp/pri/research/discussion_paper/ron246.pdf
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    Cited by:

    1. Oh, Ji Yoon, 2016. "Misallocation and Manufacturing TFP in Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(3), pages 37-52.
    2. Daniel A. Dias & Carlos Robalo Marques & Christine Richmond, 2020. "A Tale of Two Sectors: Why is Misallocation Higher in Services than in Manufacturing?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 361-393, June.
    3. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    4. HOSONO Kaoru & TAKIZAWA Miho, 2015. "Misallocation and Establishment Dynamics," Discussion papers 15011, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Borrowing Constraints; Misallocation; Aggregate Total Factor Productivity (TFP); Plant-size Distribution;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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