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Dispersion in Financing Costs and Development

Author

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  • Tiago V. Cavalcanti
  • Joseph P. Kaboski
  • Bruno S. Martins
  • Cezar Santos

Abstract

Most aggregate theories of financial frictions model credit available at a single cost of financing but rationed. However, using a comprehensive firm-level credit registry, we document both high levels and high dispersion in credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which dispersion in spreads arises from intermediation costs and market power. Calibrating to the Brazilian data, we show that, for equivalent levels of external financing, dispersion has more profound impacts on aggregate development than single-price credit rationing and yields firm dynamics that are more consistent with observed patterns.

Suggested Citation

  • Tiago V. Cavalcanti & Joseph P. Kaboski & Bruno S. Martins & Cezar Santos, 2021. "Dispersion in Financing Costs and Development," NBER Working Papers 28635, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28635
    Note: CF DEV EFG IFM
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    References listed on IDEAS

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    Cited by:

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    3. Miguel Ferreira & Timo Haber & Christian Rorig, 2023. "Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications," Working Papers 777, DNB.
    4. Feng, Ying & Ren, Jie, 2023. "Skill bias, financial frictions, and selection into entrepreneurship," Journal of Development Economics, Elsevier, vol. 162(C).

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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