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Financial frictions and productivity: Evidence from Mexico

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  • López, José Joaquín

Abstract

Mexico exhibits a level of financial development much lower than other Latin American and upper middle income countries. I quantify the aggregate total factor productivity (TFP) losses from resource misallocation arising from financial frictions in Mexico, using a standard model of credit-constrained entrepreneurs with heterogeneous productivities, and detailed, publicly available, data on the entire universe of Mexican establishments. The implied TFP losses are 10%, which represent 23% of the observed TFP gap between Mexico and the United States. The results suggest that the standard model captures well the role of bank credit in allocating capital across small and medium sized firms, but potentially misses the role of equity markets in financing investments by the largest firms.

Suggested Citation

  • López, José Joaquín, 2017. "Financial frictions and productivity: Evidence from Mexico," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 294-301.
    • Handle: RePEc:eee:quaeco:v:66:y:2017:i:c:p:294-301
    DOI: 10.1016/j.qref.2017.04.001
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    More about this item

    Keywords

    Aggregate productivity; Bank lending; Financial intermediaries;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • 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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