Jihyun Kim

WORKING PAPERS

Government-Backed Financing and Aggregate Productivity (Job Market Paper)  Paper  Slides

Abstract:  Government-backed financing enhances firms’ credit access, helping financially constrained firms grow but also prolonging the survival of low-productivity firms. These offsetting effects make the net effect of the policy on aggregate productivity ambiguous. I study the effects of government-backed financing on aggregate productivity by exploiting an expansion of government loans to firms in Korea after 2017. I show that the borrowing cost decreased more for firms eligible for government loans relative to ineligible firms. Eligible firms with higher pre-policy borrowing costs had larger post-policy increases in investment than eligible firms with lower pre-policy borrowing costs. At the same time, the exit rate of low-productivity eligible firms decreased the most following the policy. To quantify the effect on aggregate productivity, I build a heterogeneous-firm model with endogenous entry and exit, borrowing cost, and investment. I find that an expansion of government loans to firms as large as the one observed in Korea decreases aggregate productivity by 0.3% over a span of 10 years, explained by a 0.1% increase coming from higher investment by formally constrained firms and a 0.4% decrease attributed to the reduced exit rates among low-productive firms.

Sovereign Local Currency Debt and Original Sin Redux  Paper  Slides  

Abstract:  I study how government debt financing influences firms' access to credit, in turn shaping the response of emerging economies to fluctuations in global financial conditions. In particular, I focus on the effect of the government's local currency debt. Local currency debt allows emerging economies' governments to avoid currency mismatch, which is expected to insulate them from global financial fluctuation. However, this insulation is only partial, a phenomenon referred to as the "original sin redux". Using data from 11 emerging economies, I document that the degree of the insulation depends on a country's financial development and debt level. I also find that banks in a country with low financial development relative to its debt level disrupt private credit more significantly when foreign capital exits from the local currency bond market. Low financial development relative to its debt level makes the local economy more exposed to external factors despite a seemingly lowered exposure of government debt, as government debt crowds out credit for firms. To better understand these patterns, I develop a sovereign default model with local currency bonds that can be held by local banks and a heterogeneous set of foreign investors. The model replicates key patterns observed in the data, related to the relationship between an economy’s capacity to maintain private credit during capital outflows, credit risk, and external vulnerability