Working Papers

Misallocation and Capital Market Integration: Evidence from India, joint with Natalie Bau
NBER Working Paper 27955 , R&R Econometrica (3rd round)
We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%.
Vox Dev Column ; VoxEU
Media Coverage: Ideas for India

The Real Effects of Banking the Poor: Evidence from Brazil, joint with Julia Fonseca
We study how financial development affects economic development and wage inequality. We use a large expansion of government-owned banks into Brazilian cities with low bank branch coverage and combine it with data on the universe of employees from 2000–2014. We find that higher financial development fosters firm growth, higher labor demand, and higher average wages, especially for cities initially in banking deserts. However, these gains are not shared equally. Instead, they increase with workers’ productivity, implying a substantial increase in wage inequality. The changes to inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality. Our results are inconsistent with alternative explanations such as differential exposure to Brazil's economic boom, an overall increase in government lending, and other government or social welfare programs. These results motivate embedding skill heterogeneity into macro-finance development models in order to capture these distributional consequences.
VoxEU

Tracing Banks’ Credit Allocation to their Funding Costs, joint with Anne Duquerroy and Farzad Saidi
We quantify how banks’ funding costs affect their lending behavior directly, and indirectly by feeding back to their net worth. For identification, we exploit banks’ heterogeneous liability structure and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in funding costs reduces credit by 17%. To insulate their profits, banks reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, with repercussions for firms’ investment.

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Private Credit Under Political Influence: Evidence from France, joint with Anne Laure Delatte and Noémie Pinardon Touati
Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%-14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
Media coverage: Le Monde, France Culture, Liberation, Alternatives Economiques ; Les Echos

Technology Boom, Labor Reallocation, and Human Capital Depreciation, joint with Johan Hombert
During the late 1990s boom, one-third of skilled labor market entrants joined the Information and Communication Technology (ICT) sector. We use French linked employer-employee data to study their wage dynamics. Despite starting with 5% higher wages, these workers experience lower wage growth and end up with 6% lower wages fifteen years out, relative to similar workers who started in other sectors. The long-run wage discount is not explained by selection, job losses or persistently low demand for ICT services. It is concentrated in high-skill occupations, consistent with obsolescence of technical skills accelerating during a technological boom.
Media coverage: Voxeu, Frankfurter Allgemeine Zeitung

Work in Progress

Labor Misallocation Between Private and Public Sector: Evidence from Public Pension Reform in Brazil, joint with Julia Fonseca

Do Inequalities Affect Financial Development? Evidence from Brazil, joint with Julia Fonseca

Complementarities in Development Policies, the Role of Financial and Human Capital Frictions, joint with Julia Fonseca

Does Trade Increase the Misallocation of Innovation? The Role of Financial Frictions, joint with Johan Hombert and Chenzi Xu

Financial Shock and the Misallocation of Trade in the Long Run, joint with Josefin Meyer and Chenzi Xu

Does Firm Legal Status Matter? Evidence from France, joint with Paul Beaumont and Johan Hombert

Dividend Taxes and Capital Misallocation, Evidence from the 2004 Bush Tax Cut

Foreign Capital Access and Structural Change, joint with Natalie Bau and Manisha Sha