Date of Award

Spring 2022

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Peters, Michael

Abstract

The first chapter of this dissertation studies the relationship between credit constraints, exporting, and misallocation. When financial markets are imperfect, credit constraints hinder firm growth, distort the allocation of inputs, and lower aggregate productivity. Such constraints are particularly costly when they bind for the most productive firms. I focus on exporters, a group of firms that the international trade literature has identified as uniquely productive. Are exporters credit constrained? Do policies that target exporters — which are ubiquitous, particularly in developing countries — mitigate or worsen misallocation? I answer these questions by combining a natural experiment in India with a quantitative model. I exploit a directed credit policy in India as a source of exogenous variation in credit supply. Eligibility was determined by a cutoff in physical capital, allowing me to estimate its effects with a regression discontinuity design. Exporters responded strongly to the relaxation of credit constraints caused by the policy: they borrowed more, hired more workers, and sold more output. By contrast, I find no effect on non-exporters. I conclude that credit constraints must be relatively more important for exporting firms. Motivated by this finding, I build a model of heterogeneous entrepreneurs that links credit constraints and the decision to export. Two forces shape exporting: productivity and access to credit. Which of these dominates determines the relative importance of credit constraints across exporting and non-exporting firms. I estimate the model using the natural experiment, and find that the decision to export is strongly driven by productivity. The result is that credit constraints bind for many exporters; in the model, 37% of exporters and 8% of non-exporters are constrained. Inputs are misallocated and exporters are inefficiently small. In counterfactual experiments, I find that directly relaxing the credit constraint of exporters raises aggregate productivity by 3.33%. However, I also show that subsidizing exporter employment worsens misallocation, because relatively unproductive, unconstrained exporters are the primary beneficiaries. The second chapter considers quite a different topic: the relationship between income inequality and spatial sorting. Housing expenditure shares decline with income. A household’s skill level determines its income, and therefore its housing expenditure share, its sensitivity to housing costs and its preferences over different locations. The result is spatial sorting driven by differences in cost-of-living between skill groups. Increases in the aggregate skill premium amplify these differences and intensify sorting. To quantify this mechanism, I augment a standard quantitative spatial model with flexible nonhomothetic preferences, disciplining the strength of the housing demand channel using consumption microdata. I find that the rising skill premium caused 23% of the increase in spatial sorting by skill since 1980.

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