Research

Firms pay for intermediate inputs either with cash up front or with credit from their suppliers. We quantify what this financing costs the economy in a production-network model with both margins, disciplined by sectoral, balance-sheet and credit data. When liquidity is lent domestically, its interest is a transfer and the working-capital distortion costs little; crisis event studies for emerging markets show that financing becomes costly when the lender moves offshore. The cost of credit comes instead from what default destroys. In the United States, defaultable trade credit costs 0.289% of consumption, almost all of it resources lost in bankruptcy and carried through the network, while misallocation is negligible. Holding the financial calibration fixed and swapping only the input-output structure across five countries, the country with the lowest failure rate bears the largest loss.

The United Kingdom has proposed a charge of about £10,000 on eligible adult asylum-support recipients, collected above an earnings threshold and linked to settlement. This paper asks how such a charge changes who chooses the UK, using a six-destination Roy-logit model in which refugees differ in general skill, destination-specific skill transfer, employment attachment, and access to alternative routes. Liability concentrates among workers just above the threshold, whose surplus from choosing the UK is smallest. At equal expected revenue, a capped proportional schedule induces less exit from the UK than the fixed charge and shifts the burden toward higher earners.

Dependence on a trade chokepoint can reflect politically restricted alternatives, not geography and technology alone. This paper develops a network-design model that jointly selects infrastructure and routes under politically integrated access, and applies it to crude-oil exports through the Strait of Hormuz. A closure-oriented system can sustain the full 16.4 million barrels per day of required deliveries; starting from 2024 infrastructure, this requires $31.9 billion of initial regional pipeline, pumping, and export-terminal additions. Political integration therefore permits substantial reductions in chokepoint dependence through costed alternatives.

We derive a second-order approximation to real GDP for changes in productivity, price-cost wedges, and wasted distortions around a distorted production-network equilibrium. The central contribution is a decomposition of nonlinear aggregation into downstream cost propagation and upstream payment propagation. Shocks not only reweight sectoral cost exposure but also redirect income between factors and profits and recompose final demand, factor intensity, and input sourcing. These state-dependent channels make curvature around distorted equilibria differ from familiar efficient-economy formulas. In two benchmark economies, the second-order approximation sharply reduces error relative to the exact nonlinear equilibrium, especially for large shocks. In an aggregate TFP application, it also outperforms first-order aggregation, with its largest gains near business-cycle troughs and peaks.

We examine how recessions affect firms through three Transmission Channels (domestic demand, financial market conditions, and international trade). Accordingly, five different indices of performance (production, sales, profit, investment, and value added) are defined, for which the effects of the channels above are measured. Using panel data of “ Annual Survey of Iranian Manufacturing Enterprises” at the plant level (2003-2012), the indices are measured for the level of industrial activities and the level of firm. Our results show that international trade and financial market conditions significantly explain firms’ performance in the 2008-2009 recession. Firms with high dependency on external finance or those that export larger shares of their products had relatively lower performance; however, those firms that import larger shares of their materials performed better than others. In contrast, in the 2012-2013 recession, the recession propagated mostly through domestic demand. Moreover, exporting firms demonstrate better performance, and the effect of importing intermediate goods is statistically insignificant.

This paper investigates Dutch Disease in Iran using panel data of manufacturing firms by examining the impact of a rise in oil prices on intensive and extensive trade margins. We find that firms gain a competitive advantage in foreign markets because of the increased subsidy during high oil prices. Average wage increases during high oil prices, but they are much less for exporting firms. We also find robust evidence that high oil prices reduce investments of manufacturing firms.