Capital-Reallocation Frictions and Trade Shocks

89 Pages Posted: 22 Oct 2019

See all articles by Andrea Lanteri

Andrea Lanteri

Duke University - Department of Economics

Pamela Medina

University of Toronto - Rotman School of Management

Eugene Tan

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: May 2020

Abstract

"What are the short- and medium-term effects of an international-trade shock that increases competition for domestic manufacturing firms? We address this question by combining firm-level investment data from Peruvian manufacturing, bilateral trade-flows between Peru and China, and a quantitative general-equilibrium model with heterogeneous firms subject to idiosyncratic shocks. In the data, we find evidence of substantial frictions that slow capital reallocation, either through disinvestment or firm exit. In our model, these frictions induce slow transitional dynamics after a trade shock, with gradual productivity gains. On impact, a spike in inaction increases the aggregate productivity wedge relative to a frictionless" "benchmark."

Keywords: Trade shocks, Investment irreversibility, Capital reallocation

Suggested Citation

Lanteri, Andrea and Medina, Pamela and Tan, Eugene, Capital-Reallocation Frictions and Trade Shocks (May 2020). Economic Research Initiatives at Duke (ERID) Working Paper No. 293, Available at SSRN: https://ssrn.com/abstract=3473365 or http://dx.doi.org/10.2139/ssrn.3473365

Andrea Lanteri (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Pamela Medina

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Eugene Tan

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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