Globally Consistent Creditor Protection, Reallocation, and Productivity

Abstract

This paper documents across-firm reallocation as an important channel through which creditor rights affect real outcomes. I exploit the staggered adoption of an international convention that provides globally consistent strong creditor protection for aircraft finance. After this reform, country-level productivity increases by 12%, driven mostly by across-firm reallocation. Productive airlines borrow more, expand, and adopt new technology at the expense of unproductive ones. Such reallocation is facilitated by (i) easier and quicker asset redeployment; and (ii) the influx of foreign financiers offering innovative financial products, which improves credit allocative efficiency, allowing productive airlines to borrow and invest more. 

Keywords: Creditor Rights, Allocative Effciency, Reallocation, Productivity and Growth, Law and Finance

JEL Classification: D22, D24, G32, G33, K12, K33, L11