Credit and investment distortions: Evidence from Mexican manufacturing

Credit and investment distortions: Evidence from Mexican manufacturing

We document a transmission channel from credit conditions to capital accumulation via investment wedges. Using a simple multi-industry model of production and investment, we measure these wedges at the 4-digit industry level from Mexican manufacturing and show that they account for most of the chang...

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Bibliographic Details
Published in:Economics letters Vol. 197; p. 109610
Main Authors: Meza, Felipe, Pratap, Sangeeta, Urrutia, Carlos
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01-12-2020
Elsevier Science Ltd
Subjects:
Accumulation
Capital
Capital formation
Credit
Interest rates
Investment
Investments
Manufacturing
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Summary:We document a transmission channel from credit conditions to capital accumulation via investment wedges. Using a simple multi-industry model of production and investment, we measure these wedges at the 4-digit industry level from Mexican manufacturing and show that they account for most of the changes in aggregate capital over time. We also find a robust relation between the wedges and financial variables: credit and interest rates, also measured at the industry level.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2020.109610