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Working Paper
Firm Entry and Macroeconomic Dynamics: A State-level Analysis
Using an annual panel of U.S. states over the period 1982-2014, we estimate the response of macroeconomic variables to a shock to the number of new firms (startups). We find that these shocks have significant effects that persist for many years on real gross domestic product, productivity and population. This is consistent with simple models of firm dynamics where a ?missing generation? of firms affects productivity persistently.
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Need for Speed: Quality of Innovations and the Allocation of Inventors
This paper studies how the speed-quality tradeoff in innovation interacts with firm dynamics, concentration, and economic growth. Empirically, we document long-run trends in the increasing speed of innovation alongside declining quality at large firms. Leveraging variation from an exogenous policy change, we document the existence of the speed-quality tradeoff both at the firm and aggregate level. We develop an endogenous growth model that incorporates the speed-quality tradeoff and show that allocating less labor towards speed increases growth, particularly in the presence of private ...
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Nonlinear Firm Dynamics
This paper presents empirical evidence on the nature of idiosyncratic shocks to firms and discusses its role for firm behavior and aggregate fluctuations. We document that firm-level sales and productivity are hit by heavy-tailed shocks and follow a nonlinear stochastic process, thus departing from the canonical linear. We estimate a state-of-the-art model to flexibly capture the rich dynamics uncovered in the data and characterize the drivers of nonlinear persistence and non-Gaussian shocks. We show that these features are crucial to get empirically plausible volatility and persistence of ...
Working Paper
Bank Capital Pressures, Loan Substitutability, and Nonfinancial Employment
We exploit the cross-state, cross-time variation in bank tangible capital ratios-brought about by bank branch deregulation on a state-by-state basis-to identify the effects of bank capital pressures on employment and firm dynamics during two waves of changes in bank capital regulation. We show that stronger capital pressures temporarily slowed down growth in employment in industries that depend on external finance, retarding growth in the average size of firms rather than in the number of firms. Such effects were particularly strong for smaller firms that may not have had access to national ...
Working Paper
Leverage over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations
We study the leverage of U.S. firms over their life cycles and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms' balance sheets with firm-level data from U.S. Census Bureau's Longitudinal Business Database for the period 2005-12. Public and private firms exhibit different leverage dynamics over their life cycles. Firm age and size are systematically related to leverage for private firms but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession and ...
Working Paper
Firm Dynamics and SOE Transformation During China’s Economic Reform
We study the reform of China’s state-owned enterprises (SOE) with a focus on the corporatization of SOEs. We first document the empirical patterns of the "grasp the large and let go of the small" policy. To quantify the implications of the reform for aggregate output and TFP, we build a three-sector firm dynamics model featuring financial frictions and endogenous firm-type choices. Our calibrated model shows that the SOE reform can increase long-run TFP by encouraging the exit of the least efficient firms in the state sector, but the magnitude of TFP growth also depends on the efficiency in ...
Working Paper
Connecting to Power: Political Connections, Innovation, and Firm Dynamics
How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, we build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model generates a number of theoretical testable predictions and highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity. We test the predictions of our model using a brand-new dataset on Italian firms and their workers. Our dataset spans the ...
Working Paper
Firm Dynamics and SOE Transformation During China's Economic Reform
We study China’s state-owned enterprises (SOE) reform with a focus on the corporatization of SOEs. We first empirically document that small SOEs are more likely to exit or become privatized, whereas big SOEs are more likely to be corporatized while remaining under state ownership. We then build a heterogeneous-firm model featuring financial frictions, endogenous entry and exit, and optimal firm-type choices. Our calibrated model suggests that in the long run, the SOE reform increases the aggregate output by facilitating resource reallocation to the private sector. Along the transition, the ...
Working Paper
Skilled Immigration Frictions as a Barrier for Young Firms
This paper studies the impact of skilled immigration policy frictions in the United States on technology-intensive firms by age cohorts. We use firm-level data and a general equilibrium model with endogenous firm entry and exit. The empirical results show that skilled immigration policy frictions directly influence young firm dynamics in technology-intensive sectors by affecting firm survival. Our general equilibrium model incorporates skilled foreign labor and immigration policy frictions that mimic the H-1B policy and matches the age distribution of firms in high-technology sectors, showing ...
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A unified approach to measuring u*
This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators, such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach, which employs reduced-form models and DSGE models, relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a ...