Effect on volume of exports
Effect on Boeing orders by country group
Effect on relative wage of women - primary earners vs. non-primary earners
Median distance between borrower and lender
Impulse response of likelihood of conflict to an increase in military spending
How do financial frictions shape firm investment in intangible capital? We answer this question by exploiting an investment tax subsidy in Portugal that reduced the cost of investing in both intangible and physical capital while keeping their relative price unchanged. Using firm-level data, we find that treated firms reduced their physical-to-intangible capital ratio by 11 percent, with the effect being stronger for small and financially constrained firms. The entire decline can be attributed to a loosening of financial frictions. We develop a model in which firms face borrowing constraints: intangible capital must be financed with internal cash as they cannot be used as collateral, while physical capital can be financed with debt. As a result, constrained firms over-invest in physical capital and under-invest in intangibles. The subsidy alleviates these constraints, enabling firms to reallocate investment toward intangibles. Moreover, we show that the subsidy reduces misallocation, bringing firms closer to their unconstrained capital mix. Our findings highlight the role of financial frictions in slowing the transition to an intangible-intensive production structure and in perpetuating input misallocation.
[Cite]
We provide systematic evidence on the macroeconomic consequences of war using a new dataset covering 115 conflicts and 145 countries over the past 75 years. We document three main findings. First, conflict generates large and persistent real effects: real GDP falls by 13% on average, with no recovery even after a decade, while investment collapses as financial frictions reduce domestic credit. The drop in real activity is more pronounced for intrastate conflicts than it is for interstate conflicts. Second, government finances deteriorate as revenues contract and expenditures remain stable, thus raising primary deficits. Real government debt also declines, and governments shift 1.2% of GDP toward short maturities. Third, governments rely heavily on inflation to finance their deficits: the price level and money supply both rise by nearly 50%, eroding debt and generating seigniorage but also depressing investment and raising the cost of imported capital goods.