Private debt, public debt, and capital misallocation / Behzod Alimov
VerfasserAlimov, Behzod
ErschienenHalle (Saale), Germany : Halle Institute for Economic Research (IWH), Member of the Leibniz Association, [07. December 2019]
Umfang1 Online-Ressource (III, 32 Seiten, 1,61 MB) : Diagramme
SerieIWH-CompNet discussion papers ; 2019, no. 7 (December 2019)
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Private debt, public debt, and capital misallocation [1.61 mb]
Does finance facilitate efficient allocation of resources? Our aim in this paper is to find out whether increases in private and public indebtedness affect capital misallocation which is measured as the dispersion in the return to capital across firms in different industries. For this we use a novel dataset containing industrylevel data for 18 European countries and control for different macroeconomic indicators as potential determinants of capital misallocation. We exploit the within-country variation across industries in such indicators as external finance dependence technological intensity credit constraints and competitive structure and find that private debt accumulation disproportionately increases capital misallocation in industries with higher financial dependence higher R&D intensity a larger share of credit-constrained firms and a lower level of competition. On the other hand we fail to find any significant and robust effect of public debt on capital misallocation within our country-sector pairs. We believe the distortionary effects of private debt found in our analysis needs a deeper theoretical investigation.