Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics

Marcela Eslava, Arturo Galindo, Marc Hofstetter and Alejandro Izquierdo

No 7711, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: Using a rich dataset of Colombian manufacturing establishments, we illustrate scarring effects of recessions operating through inefficient exit induced by heterogeneous credit constraints. We show that financially constrained businesses may be forced to exit the market during recessions even if they are more productive than surviving unconstrained counterparts: an unconstrained plant with TFP at the lowest 10th percentile faces the same estimated exit probability as a constrained plant with TFP at the 79th percentile. If credit constraints affect 1/3 of businesses, we estimate aggregate TFP losses of 1.2 log points after a four year long recession.

Keywords: Plant exit; credit constraints; business cycles; recessions (search for similar items in EconPapers)
JEL-codes: E G14 L25 O4 (search for similar items in EconPapers)
Pages: 49
Date: 2010-08-31
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:007711

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