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

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Author Info

  • 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.

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File URL: http://www.mof.go.jp/pri/research/discussion_paper/ron246.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Policy Research Institute, Ministry of Finance Japan in its series Discussion papers with number ron246.

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Length: 51 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:mof:wpaper:ron246

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Web page: http://www.mof.go.jp/pri/
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Keywords: Borrowing Constraints; Misallocation; Aggregate Total Factor Productivity (TFP); Plant-size Distribution;

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References

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