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Shocks, financial dependence and efficiency: Evidence from U.S. and Canadian industries

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  • Marcello Estevão
  • Tiago Severo

Abstract

This paper investigates how changes in industries’ funding costs affect total factor productivity (TFP) growth. Based on panel regressions using data for U.S. and Canadian industries and industries’ dependence on external funding as an identification mechanism, we show that increases in the cost of funds affect TFP growth negatively. The effect is non‐monotonic depending on a sector's external finance need. This paper presents a theoretical model that produces the observed non‐monotonic effect of financial shocks on TFP growth and suggests that financial shocks distort the allocation of factors across firms even within an industry, thus reducing TFP growth. Chocs, dépendance financière et efficacit é: résultats pour les industries américaines et canadiennes. Ce mémoire étudie comment les changements dans les coûts de financement des industries affectent la croissance de la productivité totale des facteurs (PTF). A partir de régressions de panel utilisant des données pour les industries canadiennes et américaines, et la dépendance du financement externe des industries comme mécanisme d'identification, on montre que les accroissements dans les coûts de financement affectent la croissance de la PTF négativement. L'effet est non‐monotone selon le besoin de financement externe du secteur. Le texte présente un modèle théorique qui produit l'effet non‐monotone observé des chocs financiers sur la croissance de la PTF, et suggère que les chocs financiers déforment l'allocation des facteurs entre les firmes à l'intérieur d'une industrie, réduisant la croissance de la PTF.

Suggested Citation

  • Marcello Estevão & Tiago Severo, 2014. "Shocks, financial dependence and efficiency: Evidence from U.S. and Canadian industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(2), pages 442-465, May.
    • Handle: RePEc:wly:canjec:v:47:y:2014:i:2:p:442-465
    DOI: 10.1111/caje.12078
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    Cited by:

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    2. Marcin Bielecki, 2022. "Long Shadows of Financial Shocks: An Endogenous Growth Perspective," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 1-23.
    3. Michalô °€ Brzozowski, 2020. "Impact of Credit Market Development and Stability on Productivity: New Evidence from the Industry Level," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 111-129, May.
    4. Sangeeta Pratap & Carlos Urrutia & Felipe Meza, 2017. "Credit, Misallocation and Productivity Growth: A Disaggregated Analysis," 2017 Meeting Papers 538, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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