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Working Capital, Trade and Macro Fluctuations

Author

Listed:
  • Se-Jik Kim

    (Seoul National University)

  • Hyun Song Shin

    (Princeton University)

Abstract

In addressing the precipitous drop in trade volumes in the recent crisis, the real and financial explanations have sometimes been juxtaposed as competing explanations. However, they can be reconciled by appeal to the time dimension of production and the working capital demands associated with offshoring and vertical specialization of production. We explore a model of manufacturing production chains with offshoring where firms choose their time profile of production and where inventories, accounts receivable, and productivity are procyclical and track financial conditions.

Suggested Citation

  • Se-Jik Kim & Hyun Song Shin, 2013. "Working Capital, Trade and Macro Fluctuations," Working Papers 1465, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:235
    as

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    File URL: https://gceps.princeton.edu/wp-content/uploads/2017/01/235shin.pdf
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    References listed on IDEAS

    as
    1. Alan S. Blinder, 1986. "Can the Production Smoothing Model of Inventory Behavior be Saved?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 431-453.
    2. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.
    3. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers 107, Society for Economic Dynamics.
    4. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2011. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-09," Working Papers 1396, Princeton University, Department of Economics, Econometric Research Program..
    5. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2013. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 159-214.
    6. Claudio Raddatz, 2010. "Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 985-1003, November.
    7. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
    8. Robert E. Hall, 2010. "Why Does the Economy Fall to Pieces after a Financial Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 3-20, Fall.
    9. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, number 9780199546367.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. David Rezza Baqaee & Emmanuel Farhi, 2019. "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem," Econometrica, Econometric Society, vol. 87(4), pages 1155-1203, July.
    2. Raoul Minetti & Pierluigi Murro & Zeno Rotondi & Susan Chun Zhu, 2019. "Financial Constraints, Firms’ Supply Chains, and Internationalization," Journal of the European Economic Association, European Economic Association, vol. 17(2), pages 327-375.
    3. Van Cauwenberge, Annelies & Vancauteren, Mark & Braekers, Roel & Vandemaele, Sigrid, 2019. "International trade, foreign direct investments, and firms’ systemic risk : Evidence from the Netherlands," Economic Modelling, Elsevier, vol. 81(C), pages 361-386.

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    More about this item

    Keywords

    offshoring; manufacturing; production;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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