Abstract
While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital—a rising driver of economic growth that, being nonpledgeable as collateral, is also vulnerable to financial frictions. By sheltering intangible investment from financial shocks, countercyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level data set and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competitive product market deregulation.
While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital—a rising driver of economic growth that, being nonpledgeable as collateral, is also vulnerable to financial frictions. By sheltering intangible investment from financial shocks, countercyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level data set and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competitive product market deregulation.
Authors
- JaeBin Ahn
- Romain Duval
- Can Sever
JEL codes
- E52
- E62
- O30