Browsing by Subject "Misallocation"
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Item Essays in international macroeconomics(2013-08) Steinberg, Joseph BowlinThis thesis is composed of two separate essays. In the first essay, I study the hypothesis that real exchange rate undervaluation can alleviate the economic symptoms of financial underdevelopment, acting as a temporary substitute for institutional reform. This hypothesis is motivated by recent empirical studies that document a link between real exchange rate undervaluation and increased growth in GDP per capita in developing countries. As further motivation I present new evidence that this effect is driven by an interaction between undervaluation and financial frictions. Using panel data on value added in manufacturing sectors at the 3-digit ISIC level for 103 countries, I find that for countries with low levels of financial development, real exchange rate undervaluation is associated with stronger growth in sectors that depend more heavily on external financing. To establish a causal relationship between undervaluation, financial development and growth and evaluate its quantitative implications I build a multi-sector semi-small open economy model with limited enforcement of financial contracts. Qualitative partial equilibrium results indicate that a government policy of subsidizing the purchase of tradeable goods undervalues the real exchange rate and loosens enforcement constraints, leading to temporary increased growth on the transition to a new steady state with higher output. The magnitude of this effect is increasing in the severity of the enforcement problem. For economies with severe enforcement problems this policy increases consumption although the quantitative effect is quite small. Misallocation of resources can cause large reductions in total factor productivity (TFP). The literature emphasizes financial frictions driven by limited contract enforcement that restrict productive firms' access to credit. Evidence suggests that information frictions also reduce access to credit, particularly in countries with weak contract enforcement. In the second essay, I study how the interaction between information frictions and limited enforcement affects resource allocation and TFP. I build a model in which lenders have imperfect information about borrowers' default risk and enforcing repayment is costly. I use the model to illustrate i) how imperfect information of this type causes misallocation, and ii) how limited enforcement exacerbates this effect. I calibrate the model and find that imperfect information causes TFP to fall by up to 23% when I take contract enforcement parameter values from U.S. data, and by up to 32% when I set them to values common in low-income countries.Item Essays on Economic Misallocation(2021-04) Tanure Veloso, PedroThis dissertation consists of two chapters. The unifying theme across them is how government policy affects the allocation of resources in an economy, both at the micro and macro level. The first chapter analyzes the effects of city-level zoning reforms on the spatial distribution of economic activity in a metropolitan area. Using parcel-level property tax and zoning data, I use Minneapolis recent reform, which eliminated single-family zoning lots, to estimate productivity gains in the local housing development sector. I feed the estimated productivity gain into a quantitative spatial model of the Twin Cities, the metropolitan area which Minneapolis is a part of, to compute the effect of the reform on local wages, rents and commuting patterns. The second chapter, in turn, develops a general equilibrium model with sectoral linkages in which firms face borrowing constraints that can be alleviated by government subsidies. I use it to evaluate how the Brazilian government's policy to direct subsidized credit to specific sectors, called earmarked loans, impacts output per worker through two channels. The first one is the general equilibrium effect of alleviating the borrowing constraint of a sector, increasing output. The second channel works in the other direction. In order to raise funds to subsidize loans, the government needs to tax labor and hence distorts households' consumption--labor supply decisions. Whether the first effect dominates the second depends on how relevant the subsidized sector is in the economy's production network structure. I calibrate the model using Brazilian data to study the federal government's decision to increase subsidies for specific sectors in the credit market, perform optimal policy analysis, and investigate how the economy would have performed had the policy not changed.