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Financing Costs and Development

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Listed:
  • Cavalcanti, Tiago
  • Kaboski, Joseph
  • Martins, Bruno
  • Santos, Cezar

Abstract

Most aggregate theories of financial frictions model credit available at a cost of financing equal to the savings rate but rationed. However, using a comprehensive loan-level credit registry, we document both high levels and high dispersion in default-adjusted credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which spreads arise from intermediation costs and market power. Calibrating to the Brazilian data, we show that, for equivalent levels of external financing, spreads have profound impacts on aggregate development, indeed more so than credit rationing does, and spreads yield firm dynamics that are consistent with observed patterns.

Suggested Citation

  • Cavalcanti, Tiago & Kaboski, Joseph & Martins, Bruno & Santos, Cezar, 2021. "Financing Costs and Development," CEPR Discussion Papers 15930, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:15930
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    References listed on IDEAS

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    4. 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.
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    9. Lian Allub & Pedro Gomes & Zoë Kuehn, 2024. "Human Capital and Financial Development: Firm-Level Interactions and Macroeconomic Implications," The Economic Journal, Royal Economic Society, vol. 134(659), pages 934-958.

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    Keywords

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    JEL classification:

    • 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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