Capital Inflows, Credit Growth and Skill Allocation
81 Pages Posted: 6 Jun 2017 Last revised: 2 Jun 2020
Date Written: September 6, 2019
We investigate how credit market frictions affect the channeling of capital inflows to firms, and in turn their effects on the allocation of human capital. To do so, we exploit exogenous variations in banks' equity capital in Portugal over the 2002-2007 period, a period of massive capital inflows, coupled with matched bank-firm-employees administrative data. Firms in a relationship with better capitalized banks increase borrowing, employment and skill intensity. Our results suggest a bank balance-sheet channel of capital inflows leading to a reallocation of not only capital, but also labor and skills.
Keywords: Capital Flows, Credit Frictions, Employment, Human Capital, Allocation
JEL Classification: G21, J32, J63
Suggested Citation: Suggested Citation