IDEAS home Printed from https://ideas.repec.org/p/nwu/cmsems/1251.html
   My bibliography  Save this paper

Credit Market Frictions and the Reallocation Process

Author

Listed:
  • Gadi Barlevy

Abstract

In a seminal paper, Davis and Haltiwanger (1990) demonstrate that recessions are associated with an increase in job reallocation, at least in the manufacturing sector. The conventional view has interpreted this as evidence of "cleansing" effects: less productive jobs are destroyed in recessions, and resources are reallocated towards more productive uses. Thus recessions serve to improve allocative efficiency. This paper shows that when credit market frictions are introduced, the result can be reversed. That is, the most efficient jobs are destroyed in recessions, resourses are reallocated towards less productive uses, and misallocation is exacerbated.

Suggested Citation

  • Gadi Barlevy, 1999. "Credit Market Frictions and the Reallocation Process," Discussion Papers 1251, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1251
    as

    Download full text from publisher

    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1251.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    4. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 457-475.
    5. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, April.
    6. Kiminori Matsuyama, 2000. "Endogenous Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 743-759.
    7. Martin Neil Baily & Eric J. Bartelsman & John Haltiwanger, 2001. "Labor Productivity: Structural Change And Cyclical Dynamics," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 420-433, August.
    8. Christopher L. Foote, 1998. "Trend Employment Growth and the Bunching of Job Creation and Destruction," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 809-834.
    9. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
    10. Cooper, Russell & Haltiwanger, John, 1993. "The Aggregate Implications of Machine Replacement: Theory and Evidence," American Economic Review, American Economic Association, vol. 83(3), pages 360-382, June.
    11. Acemoglu, D, 1996. "Good Jobs Versus Bad Jobs : Theory and Some Evidence," Working papers 96-33, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186, National Bureau of Economic Research, Inc.
    13. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 805-852.
    14. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    15. Aghion, Philippe & Saint-Paul, Gilles, 1991. "On the Virtue of Bad Times: An Analysis of the Interaction between Economic Fluctuations and Productivity Growth," CEPR Discussion Papers 578, C.E.P.R. Discussion Papers.
    16. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    17. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    18. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 65-96.
    19. Rogerson, Richard, 1987. "An Equilibrium Model of Sectoral Reallocation," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 824-834, August.
    20. Ricardo Caballero & Muhammad Hammour, 1998. "Improper Churn: Social Costs and Macroeconomic Consequences," Working papers 98-11, Massachusetts Institute of Technology (MIT), Department of Economics.
    21. Albuquerque, R. & Hopenhayn, H.A., 1997. "Optimal Dynamic Lending Contracts with Imperfect Enforceability," RCER Working Papers 439, University of Rochester - Center for Economic Research (RCER).
    22. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean-Bernard Chatelain, 2003. "Structural modelling of financial constraints on investment: where do we stand?," Chapters, in: Paul Butzen & Catherine Fuss (ed.), Firms’ Investment and Finance Decisions, chapter 2, pages 40-58, Edward Elgar Publishing.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Scott Schuh & Robert K. Triest, 1998. "Job reallocation and the business cycle: new facts for an old debate," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 271-357.
    2. Scott Schuh & Robert K Triest, 1998. "Job Reallocation And The Business Cycle: New Facts An Old Debate," Working Papers 98-11, Center for Economic Studies, U.S. Census Bureau.
    3. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    4. Ouyang, Min, 2009. "The scarring effect of recessions," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 184-199, March.
    5. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS
    6. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
    7. Ricardo J. Caballero & Mohamad L. Hammour, 2005. "The Cost of Recessions Revisited: A Reverse-Liquidationist View," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 313-341.
    8. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    9. John Haltiwanger, 1997. "Measuring and analyzing aggregate fluctuations: the importance of building from microeconomic evidence," Review, Federal Reserve Bank of St. Louis, issue May, pages 55-78.
    10. Saini, Seema & Ahmad, Wasim & Uddin, Gazi Salah, 2024. "Do recessions induce Schumpeterian creative destruction? Micro Evidence from India," Emerging Markets Review, Elsevier, vol. 59(C).
    11. Jose Garcia-Louzao & Linas Tarasonis, 2023. "Productivity-enhancing reallocation during the Great Recession: evidence from Lithuania," Oxford Economic Papers, Oxford University Press, vol. 75(3), pages 729-749.
    12. Steven J. Davis & John Haltiwanger, 1998. "Measuring Gross Worker and Job Flows," NBER Chapters, in: Labor Statistics Measurement Issues, pages 77-122, National Bureau of Economic Research, Inc.
    13. Ravi Balakrishnan, 2001. "The interaction of firing costs and on-the-job search: an application of a search theoretic model to the Spanish labour market," Working Papers 0102, Banco de España.
    14. Jonas D. M. Fisher & Jeffrey R. Campbell, 2000. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," American Economic Review, American Economic Association, vol. 90(5), pages 1323-1345, December.
    15. Corrêa, Márcio Veras & Centeno, Mário, 2009. "Technological Progress and Average Job Matching Quality," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 63(4), December.
    16. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    17. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    18. Andrew Figura, 2002. "The cyclical behavior of short-term and long-term job flows," Finance and Economics Discussion Series 2002-12, Board of Governors of the Federal Reserve System (U.S.).
    19. Dunne, Timothy & Haltiwanger, John & Troske, Kenneth R., 1997. "Technology and jobs: secular changes and cyclical dynamics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 107-178, June.
    20. Saini, Seema & Ahmad, Wasim, 2024. "Credit creation, credit destruction and credit reallocation: Firm-level evidence from India," Journal of Asian Economics, Elsevier, vol. 92(C).
    21. Toshihiko Mukoyama & Yoonsoo Lee, 2008. "Entry, Exit, and Plant-level Dynamics over the Business Cycle," 2008 Meeting Papers 454, Society for Economic Dynamics.

    More about this item

    Keywords

    Credit Market Imperfections; Job Reallocation; the Cleansing effect;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1251. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fran Walker (email available below). General contact details of provider: https://edirc.repec.org/data/cmnwuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.