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Dispersion in Financing Costs and Development

Author

Listed:
  • Tiago Cavalcanti

    (University of Cambridge)

  • Bruno Martins

    (Central Bank of Brazil)

  • Cezar Santos

    (Fundacao Getulio Vargas)

  • Joseph Kaboski

    (University of Notre Dame)

Abstract

We study how dispersion in financing cost and financial contract enforcement affect entrepreneurship, firm dynamics and productivity. We use employee-employer administrative linked data combined with data on financial transactions of all formal firms in Brazil to show how interest rate spreads vary with firm size, age, among other characteristics. We present a general equilibrium model with endogenous occupational choice based on a modified version of Buera, Kaboski, and Shin (2011), which are consistent with those facts of the the credit market. We then provide evidence on the allocative effects of financial reforms. Eliminating dispersion in financing cost leads to more credit and higher output due to cheaper credit for productive agents with low assets. In addition, abstracting from heterogeneity in interest rate spreads understates the impacts of financial reforms that improve the enforcement of credit contracts.

Suggested Citation

  • Tiago Cavalcanti & Bruno Martins & Cezar Santos & Joseph Kaboski, 2019. "Dispersion in Financing Costs and Development," 2019 Meeting Papers 1576, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1576
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    References listed on IDEAS

    as
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    Cited by:

    1. Gu, Jiajia, 2021. "Financial intermediation and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    2. Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.
    3. Miguel H. Ferreira & Timo Haber & Christian Rörig, 2023. "Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications," Working Papers 948, Queen Mary University of London, School of Economics and Finance.
    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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