Earmarked credit and misallocation: evidence from Brazil

• Grant number: 15/13590-6
• Support Opportunities: Scholarships abroad - Research Internship - Master's degree
• Start date: September 15, 2015
• End date: March 14, 2016
• Field of knowledge: Applied Social Sciences - Economics - Growth, Fluctuations and Economic Planning
• Principal Investigator: Gabriel de Abreu Madeira
• Grantee: Fernando Kuwer dos Santos
• Supervisor: Benjamin Moll
• Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• Institution abroad: Princeton University, United States
• Associated to the scholarship: 14/19402-4 - Directed credit and misallocation, BP.MS

Abstract

The proposed dissertation will study earmarked credit impact over total factor productivity (TFP) using an occupational choice model with heterogeneous agents. Once a subgroup of agents arbitrarily receives earmarked credit, not only theirs sets of choices are changed, but all firms in the economy must adapt, resulting in an equilibrium in which some benefited firms will grow larger and non-benefited efficient firms will shrink. Hence, being a receiver of earmarked credit (or not), wealth, and talent will determine occupational choice and firm size endogenously. To provide quantitative estimates of policy effects, we will calibrate the model with data from the Brazilian economy. Simulations with counter factual exercises for policy-determined parameters will also be analyzed. (AU)