This paper addresses the growth, welfare, and distributional effects of credit markets. We construct a general equilibrium model where human capital is the engine of growth and individuals differ in their education abilities. We argue that the existence of credit markets encourages...

This paper presents a general equilibrium model of interenterprise arrears, characterized by n-stage production technology with random productivity shocks. The model shows that large interenterprise arrears in transition economies may reflect substantial business risks in those countries and...

In addressing the precipitous drop in trade volumes in the recent crisis, the real and financial explanations have sometimes been juxtaposed as competing explanations. However, they can be reconciled by appeal to the time dimension of production and the working capital demands associated with...

An endogenous growth model with heterogeneous agents is analyzed to show that “human capital flight” or “brain drain” can lead to a permanent reduction in income and growth of the country of emigration relative to the country of immigration. Convergence between the two is therefore...

This paper presents a framework for quantitatively evaluating the macroeconomic effects of corporate restructuring and applies that framework to Japan. Using firm-level financial statement data, this paper estimates total factor productivity of individual Japanese firms. Given the estimated...

This paper explores the joint effect of aggregate productivity shocks and capital market liberalization on the optimal bailout (or liquidation) policy of banks towards defaulted borrowers. It suggests that in bad times both good and bad firms default on their obligations, it is harder for the...

The technological constraints on sustaining production chains have been discussed extensively by development economists, but the role of financial linkages has received less attention. In a model of recursive moral hazard for a manufacturing supply chain, we show that the structure of...

Imperfect financial intermediation is a key bottleneck in economic development. Korea's unique Jeonse or housing repo contract channels funds directly from tenant/lenders to landlord/entrepreneurs, by-passing the banking system. In a housing repo, the landlord/entrepreneur puts up the house as...

Different levels of corporate leverage are used in this paper to help explain the wide range of post-crisis output adjustment across East Asia. In the model developed here, highly leveraged firms facing a cutoff of capital inflows are threatened by bankruptcy. These firms respond by eliminating...