Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics

49 Pages Posted: 9 Nov 2010 Last revised: 3 Dec 2015

See all articles by Marcela Eslava

Marcela Eslava

University of the Andes (CEDE)

Arturo José Galindo

Inter-American Development Bank

Marc Hofstetter

Universidad de los Andes

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department

Date Written: September 3, 2010

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

JEL Classification: G14, E32, L25, O4

Suggested Citation

Eslava, Marcela and Galindo, Arturo José and Hofstetter, Marc and Izquierdo, Alejandro, Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics (September 3, 2010). Documento CEDE No. 2010-27, Available at SSRN: https://ssrn.com/abstract=1705524 or http://dx.doi.org/10.2139/ssrn.1705524

Marcela Eslava (Contact Author)

University of the Andes (CEDE) ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Arturo José Galindo

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Marc Hofstetter

Universidad de los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

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