IDEAS home Printed from https://ideas.repec.org/p/idb/brikps/13186.html

Financing Costs and Development

Author

Listed:
  • Cavalcanti, Tiago
  • Kaboski, Joseph P.
  • 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 firm-level credit registry, we document both high levels and high dispersion in ex post credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which dispersion in spreads arises 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 moreso than credit rationing does and spreads yield firm dynamics that are more consistent with observed patterns.

Suggested Citation

  • Cavalcanti, Tiago & Kaboski, Joseph P. & Martins, Bruno & Santos, Cezar, 2023. "Financing Costs and Development," IDB Publications (Working Papers) 13186, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:13186
    DOI: http://dx.doi.org/10.18235/0005227
    as

    Download full text from publisher

    File URL: https://publications.iadb.org/publications/english/document/Financing-Costs-and-Development.pdf
    Download Restriction: no
    File URL: https://libkey.io/http://dx.doi.org/10.18235/0005227?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Simon Gilchrist & Jae W. Sim & Egon Zakrajsek, 2013. "Misallocation and Financial Market Frictions: Some Direct Evidence from the Dispersion in Borrowing Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 159-176, January.
    2. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    3. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tiago Cavalcanti & Bruno Martins & Cezar Santos & Joseph Kaboski, 2018. "Dispersion in Financing Costs and Development," 2018 Meeting Papers 426, Society for Economic Dynamics.
    2. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1915-1967.
    3. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    4. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.
    5. Ouyang, Difei, 2024. "State-owned enterprise presence: Local spillovers," China Economic Review, Elsevier, vol. 84(C).
    6. Marios Karabarbounis & Patrick Macnamara, 2019. "Misallocation and Credit Market Constraints: the Role of Long-Term Financing," Working Paper 19-1, Federal Reserve Bank of Richmond.
    7. Wu, Guiying Laura, 2018. "Capital misallocation in China: Financial frictions or policy distortions?," Journal of Development Economics, Elsevier, vol. 130(C), pages 203-223.
    8. Matthias Meier & Ariel Mecikovsky & Christian Bayer, 2014. "Dynamics of Factor Productivity Dispersions," 2014 Meeting Papers 719, Society for Economic Dynamics.
    9. Andrea Caggese & Ander Pérez-Orive, 2017. "Capital Misallocation and Secular Stagnation," Finance and Economics Discussion Series 2017-009, Board of Governors of the Federal Reserve System (U.S.).
    10. Thibault Libert, 2017. "Misallocation Before, During and After the Great Recession," Working papers 658, Banque de France.
    11. Huiyu Li, 2015. "Leverage and Productivity," Discussion Papers 15-015, Stanford Institute for Economic Policy Research.
    12. Ek, Chanbora & Wu, Guiying Laura, 2018. "Investment-cash flow sensitivities and capital misallocation," Journal of Development Economics, Elsevier, vol. 133(C), pages 220-230.
    13. Besley, T. & Roland, I. & Van Reenen, J., 2019. "The Aggregate Consequences of Default Risk: Evidence from Firm-level Data," Cambridge Working Papers in Economics 2061, Faculty of Economics, University of Cambridge.
    14. Daniel A. Dias & Carlos Robalo Marques & Christine Richmond, 2020. "A Tale of Two Sectors: Why is Misallocation Higher in Services than in Manufacturing?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 361-393, June.
    15. Cao, Wenbin & Duan, Xiaoman & Niu, Xu, 2023. "Access to finance, bureaucracy, and capital allocation efficiency," Journal of Economics and Business, Elsevier, vol. 125.
    16. repec:ptu:bdpart:e201602 is not listed on IDEAS
    17. David, Joel M. & Schmid, Lukas & Zeke, David, 2022. "Risk-adjusted capital allocation and misallocation," Journal of Financial Economics, Elsevier, vol. 145(3), pages 684-705.
    18. Moser, Christian & Saidi, Farzad & Wirth, Benjamin & Wolter, Stefanie, 2020. "Credit Supply, Firms, and Earnings Inequality," MPRA Paper 100371, University Library of Munich, Germany.
    19. Dai, Xiaoyong & Cheng, Liwei, 2016. "Market distortions and aggregate productivity: Evidence from Chinese energy enterprises," Energy Policy, Elsevier, vol. 95(C), pages 304-313.
    20. Zhang, Cheng & Zhu, Yuyao & Zhang, Limin, 2024. "Effect of digital inclusive finance on common prosperity and the underlying mechanisms," International Review of Financial Analysis, Elsevier, vol. 91(C).
    21. Hu, Yiming & Xu, Mingxia, 2021. "Xi's anti-corruption campaign and the speed of capital structure adjustment," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).

    More about this item

    Keywords

    ;
    ;
    ;

    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
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idb:brikps:13186. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Felipe Herrera Library (email available below). General contact details of provider: https://edirc.repec.org/data/iadbbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.