IDEAS home Printed from https://ideas.repec.org/p/wes/weswpa/2023-003.html
   My bibliography  Save this paper

Zombie Lending, Labor Hoarding, and Local Industry Growth

Author

Listed:
  • Kin Wai Cheung

    (Department of Economics, University of California, Davis)

  • Masami Imai

    (Department of Economics, Wesleyan University)

Abstract

After the bursting of real estate bubbles in 1991, Japanese banks continued lending to the construction and real estate sectors to conceal problem loans. We revisit Japan’s experience and propose a new mechanism via which banks’ loan-evergreening policy for these troubled sectors undermines allocative efficiency. Namely, banks’ support for the construction and real estate sectors encourages labor hoarding in unviable construction projects. Since construction projects predominantly use low-skilled workers, banks’ loan-evergreening policy may depress other low-skilled industries. Based on the industry-level data in each of Japan’s 47 prefectures from 1992-1996, we document empirical facts consistent with this hypothesis. On average, lowskilled industries experienced disproportionately slower output and employment growth and more sluggish growth in the number of new establishments in prefectures where the share of bank loans to local construction/real estate sectors increased more after construction boom ended.

Suggested Citation

  • Kin Wai Cheung & Masami Imai, 2023. "Zombie Lending, Labor Hoarding, and Local Industry Growth," Wesleyan Economics Working Papers 2023-003, Wesleyan University, Department of Economics.
  • Handle: RePEc:wes:weswpa:2023-003
    as

    Download full text from publisher

    File URL: http://repec.wesleyan.edu/pdf/mimai/2023003_imai.pdf
    Download Restriction: no
    ---><---

    More about this item

    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:wes:weswpa:2023-003. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/edwesus.html .

    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.

    We have no bibliographic references for this item. You can help adding them by using 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: Manolis Kaparakis (email available below). General contact details of provider: https://edirc.repec.org/data/edwesus.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.