Economic Resilience: Spillovers, Courts, and Vertical Integration

61 Pages Posted: 26 Feb 2020 Last revised: 25 Aug 2020

See all articles by Dimas Fazio

Dimas Fazio

National University of Singapore (NUS) - Department of Finance

Thiago Silva

Government of the Federative Republic of Brazil - Central Bank of Brazil

Janis Skrastins

Washington University in St. Louis

Date Written: August 24, 2020

Abstract

We investigate the impact of institutions on the transmission of shocks across firms. Using novel inter-firm wire transfer data, we find that suppliers exposed to natural disasters pass this shock to their customers particularly when the customer's court system is congested. Evidence suggests that congested courts amplify spillovers through potential future holdup problems: customers face frictions both in contracting with new suppliers and in obtaining bank credit. Subsequently, customers seem to vertically integrate the production of affected inputs and obtain liquidity by selling their accounts receivables. Our results highlight the importance of institutions in facilitating economic resilience.

Keywords: courts, economic fragility, contract enforcement, networks, propagation

JEL Classification: D02, E02, L14, E23, E32

Suggested Citation

Fazio, Dimas and Silva, Thiago and Skrastins, Janis, Economic Resilience: Spillovers, Courts, and Vertical Integration (August 24, 2020). Available at SSRN: https://ssrn.com/abstract=3517257 or http://dx.doi.org/10.2139/ssrn.3517257

Dimas Fazio

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Thiago Silva

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Janis Skrastins (Contact Author)

Washington University in St. Louis ( email )

1 brookings drive
campus box 1133
st louis, MO St Louis 63130
United States

HOME PAGE: http://www.jskrastins.com

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