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Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics

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  • Marcela Eslava

    ()

  • Arturo Galindo

    ()

  • Marc Hofstetter

    ()

  • Alejandro Izquierdo

    ()

Abstract

Using a rich dataset of Colombian manufacturing establishments, we illustrate scarring effects of recessions operating through inefficient exit induced by heterogeneous credit constraints. We show that financially constrained businesses may be forced to exit the market during recessions even if they are more productive than surviving unconstrained counterparts: an unconstrained plant with TFP at the lowest 10th percentile faces the same estimated exit probability as a constrained plant with TFP at the 79th percentile. If credit constraints affect 1/3 of businesses, we estimate aggregate TFP losses of 1.2 log points after a four year long recession.

Suggested Citation

  • Marcela Eslava & Arturo Galindo & Marc Hofstetter & Alejandro Izquierdo, 2010. "Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics," DOCUMENTOS CEDE 007711, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:007711
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2010-27.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Duverger, Catherine & van Pottelsberghe de la Potterie, Bruno, 2011. "Determinants of productivity growth: Science and technology policies and the contribution of R&D," EIB Papers 9/2011, European Investment Bank, Economics Department.
    2. Marcela Eslava & Alessandro Maffioli & Marcela Meléndez Arjona, 2012. "Second-tier Government Banks and Firm Performance: Micro-Evidence from Colombia," IDB Publications (Working Papers) 3825, Inter-American Development Bank.
    3. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    4. Carlos Quicazán & Diana Fernández Moreno & Dairo Estrada, 2012. "Credit determinants and its impact of firms' growth in Colombia," Temas de Estabilidad Financiera 067, Banco de la Republica de Colombia.
    5. Mary Hallward-Driemeier & Bob Rijkers, 2013. "Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1788-1810, December.
    6. Uppenberg, Kristian, 2011. "Economic growth in the US and the EU: a sectoral decomposition," EIB Papers 2/2011, European Investment Bank, Economics Department.
    7. Strauss, Hubert, 2011. "Productivity and growth in Europe: Editor's introduction," EIB Papers 1/2011, European Investment Bank, Economics Department.
    8. Arnold, Jens & Scarpetta, Stefano & Nicoletti, Giuseppe, 2011. "Regulation, resource reallocation and productivity growth," EIB Papers 4/2011, European Investment Bank, Economics Department.
    9. Altomonte, Carlo & Ottaviano, Gianmarco, 2011. "The role of international production sharing in EU productivity and competitiveness," EIB Papers 3/2011, European Investment Bank, Economics Department.
    10. Haltiwanger, John, 2011. "Firm dynamics and productivity growth," EIB Papers 5/2011, European Investment Bank, Economics Department.

    More about this item

    Keywords

    Plant exit; credit constraints; business cycles; recessions;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E - Macroeconomics and Monetary Economics
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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