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Credit-Supply Shocks and Firm Productivity in Italy
Author:
Sebastian Dörr null

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and
Mr. Mehdi Raissi
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 067
Language:
English
Publication Date:
24 Mar 2017
DOI:
https://doi.org/10.5089/9781475588668.001
ISBN:
9781475588668
ISSN:
1018-5941
Pages:
29
Keywords:
WP; loan; loan growth; Italy; credit-supply shocks; productivity; labor market rigidities; demand factor; labor productivity; credit condition; summary statistics; extent firm; firm control; firm borrowing costs; firm productivity; forces firm; firm level; Loans; Credit; Bank credit; Supply shocks; Total factor productivity
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The Italian economy has been struggling with low productivity growth and bank balance sheet strains. This paper examines the implications for firm productivity of adverse shocks to bank lending in Italy, using a novel identification scheme and loan-level data on syndicated lending. We exploit the heterogeneous loan exposure of Italian banks to foreign borrowers in distress, and find that a negative shock to bank credit supply reduces firms' loan growth, investment, capital-to-labor ratio, and productivity. The transmission from changes in credit supply to firm productivity relates to labor market rigidities, which delay or distort the adjustment of firms' desired labor and capital allocations, and thereby reduce firms' productivity. Effects are stronger for firms with higher capital intensity and external financial dependence.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund