Working Paper: CEPR ID: DP17186
Authors: Federico Cingano; Fadi Hassan
Abstract: Using detailed bank-firm matched data, we study the impact of international financial flows on misallocation. We exploit a boom of capital inflows in Italy and identify the patterns of credit allocation by banks with different exposure to such boom. We find that exposed banks tilt credit supply to high-productivity firms and that credit allocation reduces the dispersion of productivity having a positive impact on aggregate TFP growth. We explore alternative drivers of misallocation and find evidence that, in a context of raising financial deepening, the expansion of banks funded by an increase of bonds sold domestically is responsible.
Keywords: capital flows; misallocation; productivity
JEL Codes: F30; F60; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank exposure (F65) | credit supply (E51) |
| capital inflows (F21) | bank exposure (F65) |
| credit supply (E51) | productivity dispersion (O49) |
| foreign financial flows (F21) | total factor productivity (TFP) growth (O49) |
| bank exposure (F65) | allocative efficiency (D61) |
| credit allocation (E51) | high-productivity firms (D22) |