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Capital Allocation Across Sectors: Evidence from a Boom in Agriculture

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  • Paula Bustos
  • Gabriel Garber
  • Jacopo Ponticelli

Abstract

We study the allocation of capital across sectors. In particular, we assess to what extent growth in agricultural profits can lead to an increase in the supply of credit in industry and services. For this purpose, we identify an exogenous increase in agricultural profits due to the adoption of genetically engineered soy in Brazil. The new agricultural technology had heterogeneous effects in areas with different soil and weather characteristics. We find that regions with larger increases in agricultural profitability experienced increases in local bank deposits. However, there was no increase in local bank lending. Instead, capital was reallocated towards other regions through bank branch networks. Regions with more bank branches receiving funds from soy areas experienced both an increase in credit supply and faster growth of small and medium sized firms

Suggested Citation

  • Paula Bustos & Gabriel Garber & Jacopo Ponticelli, 2016. "Capital Allocation Across Sectors: Evidence from a Boom in Agriculture," Working Papers Series 414, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:414
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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps414.pdf
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    Cited by:

    1. Littke, Helge C. N., 2018. "Channeling the iron ore super-cycle: The role of regional bank branch networks in emerging markets," IWH Discussion Papers 11/2018, Halle Institute for Economic Research (IWH).
    2. M. Ali Choudhary & Nicola Limodio, 2017. "Deposit Volatility, Liquidity and Long-Term Investment: Evidence from a Natural Experiment in Pakistan," Working Papers 613, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Nicola Limodio & Francesco Strobbe, 2017. "Bank Deposits and Liquidity Regulation: Evidence from Ethiopia," Working Papers 612, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Alain de JANVRY & Elisabeth SADOULET & Manzoor DAR & Kyle EMERICK, 2016. "The Agricultural Technology Adoption Puzzle: What Can We Learn From Field Experiments?," Working Papers P178, FERDI.
    5. Petkov, Ivan, 2015. "Small Business Lending and the Bank-Branch Network," MPRA Paper 85762, University Library of Munich, Germany, revised 13 Oct 2017.

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