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EXIM's Exit: Industrial Policy, Export Credit Agencies, and Capital Allocation
Adrien Matray, Karsten Müller, Chenzi Xu and Poorya Kabir (2024), NBER WP 32019
We study the role of Export Credit Agencies---the predominant tool of modern industrial policy---on exports and firm investment by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015-2019 as a natural experiment. We document sizable real effects of the shutdown: a $1 reduction in EXIM trade financing reduces exports by approximately $4.50. EXIM-dependent firms experience a contraction in total revenues, investment, and employment. EXIM's shutdown has the largest effects for exporters facing financing frictions and selling to markets with high contractual frictions, indicating a plausible underprovision of trade financing by private financial institutions. Consistent with these findings, we find that the shutdown increased the misallocation of capital because it particularly affected firms with a higher ex-ante marginal revenue product of capital. Our results provide a framework for the conditions under which Export Credit Agencies can boost exports and firm growth, and can act as a tool of industrial policy without distorting the allocation of resources in the economy.
[Bibtex] [Presentation]
Wage dynamics of different cohorts of new skilled workers entering the ICT sector relative to other sectors
Innovation Booms, Easy Financing, and Human Capital Accumulation
Hombert, Johan and Adrien Matray (2024) NBER working paper 32012
R&R Journal of Financial Economics
Innovation booms are often fueled by easy financing, allowing new technology firms to pay high wages that attract skilled labor. Using the late 1990s Information and Communication Technology (ICT) boom, we show that skilled workers who joined ICT firms during this period suffered substantial long-term earnings losses compared to similar workers in other sectors. We show this pattern stems from accelerated obsolescence of technical skills acquired during the boom period, rather than negative worker selection or general sector decline. Notably, firms that received the largest capital inflows during the boom later saw the steepest declines in worker productivity. This relationship between capital allocation and human capital depreciation amplified the negative impact on aggregate productivity, as financing patterns increased both the number of workers exposed to skill obsolescence and the magnitude of their human capital losses. Our findings reveal an overlooked cost of innovation booms: the long-term devaluation of human capital among the skilled workers who develop pioneering but ultimately transient technologies.
Innovation booms are often fueled by easy financing, allowing new technology firms to pay high wages that attract skilled labor. Using the late 1990s Information and Communication Technology (ICT) boom, we show that skilled workers who joined ICT firms during this period suffered substantial long-term earnings losses compared to similar workers in other sectors. We show this pattern stems from accelerated obsolescence of technical skills acquired during the boom period, rather than negative worker selection or general sector decline. Notably, firms that received the largest capital inflows during the boom later saw the steepest declines in worker productivity. This relationship between capital allocation and human capital depreciation amplified the negative impact on aggregate productivity, as financing patterns increased both the number of workers exposed to skill obsolescence and the magnitude of their human capital losses. Our findings reveal an overlooked cost of innovation booms: the long-term devaluation of human capital among the skilled workers who develop pioneering but ultimately transient technologies.
[replication package] [code certification] [Bibtex]
Microfinance Institutions and Economic Development: Evidence from Peru
Carlos Burga, Julia Fonseca and Adrien Matray (2024) [Draft available upon request]
Can MFIs have a transformative role for local economies? Or is there role limited to slightly improving the lives of entrepreneurs at the margin, with no ability to be an engine of economic development? Using the deregulation of the MFI industry in Peru in 2005 that allowed MFIs to expand outside their initial city, we show MFIs can have an important effect on economic development. The deregulation led the largest MFIs to open branches in cities that were previously financial desert. Local entrepreneurs are then able to grow by using loans from MFIs, before graduating to loans from regular banks. We can measure this transition as the Peruvian credit registry records loans from any financial institutions: banks and MFIs. The acceleration of entry came with an increase in exit of incumbent firms, consistent with financing frictions creating a misallocation of who is entrepreneurs in environment where capital is scarce.
Contract Completeness of Company Bylaws and Entrepreneurial Success
Paul Beaumont, Johan Hombert and Adrien Matray (2023) [Draft available upon request]
Does reducing the cost for entrepreneurs to write more complete contracts with their financiers enhance entrepreneurial success? To shed light on this question, this paper exploits a 2008 French reform that made it less costly for new firms to choose a legal form allowing more complete financial contracts in the company bylaws. Using comprehensive tax-filing data from 2004 to 2015, we find a marked increase in the adoption of that legal form among new firms, leading to higher growth in capital, labor, and revenues in the first three years after creation. The effects are more pronounced for firms with high marginal returns to capital, suggesting that capital misallocation decreases. Our findings highlight the significant role of legal and financial structures in entrepreneurial success, which has policy implications for promoting entrepreneurship.
Robust Elasticity Estimates in Disaggregated Data
Paul Beaumont, Adrien Matray, and Chenzi Xu (2024) [Draft available upon request]
The increasing availability of microdata has enabled researchers to decompose economic shocks across multiple dimensions, such as breaking down country exports by firms, products, and destinations or analyzing city employment across industries and firms. However, this level of disaggregation presents new empirical challenges, such as accounting for the extensive margin and handling with heterogeneous treatment effects when the number of observations varies nonrandomly across agents . Our research demonstrates that standard regressions using log-transformed dependent variables are biased in most settings and can misrepresent the true effects of additional controls on the elasticity of the variable of interest. To address these issues, we propose a new methodology based on the aggregation properties of arc elasticity. This approach is particularly useful for: (i) expressing the total elasticity of a shock as a weighted sum of intensive and extensive margins; (ii) disaggregating data to control for additional unobserved heterogeneity; and (iii) testing for potential spillovers and violations of the Stable Unit Treatment Value Assumption (SUTVA) in a model-free way. Our method provides a robust framework for analyzing highly disaggregated economic data, offering insights that traditional approaches may overlook.
Dividend Taxes, Firm Growth, and the Allocation of Capital
Adrien Matray (2023), NBER working paper 30099
This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008--2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to accumulate more capital and labor, resulting in higher revenues. Heterogeneity analyses show that firms with high demand and returns to capital responded most, while no group of treated firms reduced their capital. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes financial constraints, which can reduce capital misallocation.
This paper superseeds Boissel and Matray (2022) that was retracted from the AER. This note explains the 2 reasons for retraction, the process at the AER, and the scientific evidence showing that the revisited results are almost quantitatively identical to the original.
This supplemental note provides a discussion of the comment by Bach, Bozio, Guillouzouic, and Malgouyres (2024), about which I was unfortunately not given the permission to publish a reply, against any standard professional norms.The note explains why the point raised is conceptually and econometrically incorrect.
This note explains the 2 reasons for retraction, the process at the AER, and the scientific evidence showing that the revisited results are almost quantitatively identical to the original.
Tracing Banks’ Credit Allocation to their Profits
Duquerroy, Anne, Adrien Matray and Farzad Saidi (2022), Working paper
We quantify how banks’ funding-related expenses affect their lending behavior. For identification, we exploit banks’ heterogeneous liability composition and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in average funding costs reduces banks’ credit supply by 17%. To insulate their profits, banks also reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, which implies that firms have to reduce their investment.
We quantify how banks’ funding-related expenses affect their lending behavior. For identification, we exploit banks’ heterogeneous liability composition and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in average funding costs reduces banks’ credit supply by 17%. To insulate their profits, banks also reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, which implies that firms have to reduce their investment.
Political Quid Pro Quo In Financial Markets
Delatte, Anne Laure, Adrien Matray and Noémie Pinardon Touati (2020) Working paper
Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%-14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%-14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
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