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Argentina is characterized by low levels of private credit and persistent labor market rigidities. Furthermore, financial development remained stagnant in Argentina even during episodes of fast economic growth, in stark contrast with the experience of sustained growth accelerations around the world. The goals of the paper are twofold. Firstly, it is concerned with quantifying the productivity losses associated with such low levels of private credit penetration and characterizing its implications for different subsets of firms in the economy. The latter is important in light of various policy interventions aimed at mitigating the impact of low access to credit based on firm-size thresholds. Secondly, it studies the dynamics of hypothetical reforms to credit markets in a context of rigid labor markets, which seems to be the adequate scenario in which structural reforms will have to be implemented, given the stickiness that labor market regulations have shown to reform efforts in the past. It finds sizable productivity losses from financial frictions, in the order of thirteen percent. At the micro level it finds that it is the youngest firms, whose average marginal return to capital is far above the riskfree rate in the economy, that are more prone to become financially constrained. Turning to reform scenarios, we investigate sudden reforms that are implemented abruptly and more plausible reform paths that gradually dismantle financial frictions. In the former, productivity and the investment rate rise sharply on impact, while it also does the rate of unemployment, going from five to almost twelve percent. In the latter, the rise of unemployment is more gradual and less sharp, peaking at seven percent. On the flipside, the investment rate declines on impact, although the contraction is short-lived
Sprache:
Englisch
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