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Economic Resilience: spillovers, courts, and vertical integration

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  • Dimas Mateus Fazio
  • Thiago Christiano Silva
  • Janis Skrastins

Abstract

We investigate the impact of institutions on the transmission of shocks across firms. Using novel inter-firm wire transfer data, we find that suppliers exposed to natural disasters pass this shock to their customers particularly when the customer's court system is congested. Evidence suggests that congested courts amplify spillovers through potential future holdup problems: customers face frictions both in contracting with new suppliers and in obtaining bank credit. Subsequently, customers seem to vertically integrate the production of affected inputs and obtain liquidity by selling their accounts receivables. Our results highlight the importance of institutions in facilitating economic resilience.

Suggested Citation

  • Dimas Mateus Fazio & Thiago Christiano Silva & Janis Skrastins, 2020. "Economic Resilience: spillovers, courts, and vertical integration," Working Papers Series 531, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:531
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