Productivity and Trade Dynamics in Sudden Stops

Posted: 2 Mar 2020 Last revised: 24 Aug 2021

See all articles by Felipe Benguria

Felipe Benguria

University of Kentucky - Gatton College of Business and Economics

Hidehiko Matsumoto

National Graduate Institute for Policy Studies (GRIPS); Bank of Japan

Felipe Saffie

University of Virginia - Darden School of Business

Date Written: February 2, 2020

Abstract

This paper proposes a framework to jointly study productivity and trade dynamics during financial crises. The persistent output loss caused by crises is driven by lower productivity growth, which is determined by changes in product entry and exit margins in domestic and export markets. We calibrate and validate the model using unique data on firms' product portfolios, finding they closely match the behavior of various margins during Chile's 1998 sudden stop. We decompose the sources of the welfare cost of sudden stops, finding that 30% is due to a decline in productivity growth. Lower productivity growth, in turn, is due mostly to slower firm and product entry into the domestic market, while a persistent real exchange rate depreciation induces surviving firms to tilt their product portfolios toward export markets, driving the productivity recovery in the aftermath of the crisis.

Keywords: Endogenous growth, Firm dynamics, Trade dynamics, Sudden stops

JEL Classification: F10, F41, F43, F44, O3

Suggested Citation

Benguria, Felipe and Matsumoto, Hidehiko and Saffie, Felipe, Productivity and Trade Dynamics in Sudden Stops (February 2, 2020). Available at SSRN: https://ssrn.com/abstract=3530639 or http://dx.doi.org/10.2139/ssrn.3530639

Felipe Benguria (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

Hidehiko Matsumoto

National Graduate Institute for Policy Studies (GRIPS) ( email )

7-22-1 Roppongi, Minato-Ku
Tokyo 106-8677, Tokyo 106-8677
Japan

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

Felipe Saffie

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
442
PlumX Metrics