Essays on economic growth and development

Abstract

This doctoral thesis is comprised of two essays on the matters of economic growth and devel- opment economics. In the first essay, I use a reclassification of firms done by the Brazilian Development Bank in 2003 as a natural experiment to causally identify the impact of a shift in credit conditions on capital, labor and scale wedges measuring the misallocation of resources. I find that firms reclassified as small, coming from medium, suffered a shift of - 0.261 in their average log capital wedge 6 years after treatment. Firms reclassified as medium, coming from large, had its largest impact at - 0.123 log average capital wedge 2 years after treatment, but the gap was closed again 6 years after treatment. That change in the average distribution of log capital wedges, particularly when one starts to face favored credit conditions from the small cohort, suggests that the BNDES size classification can potentially have noticeable impacts in resource allocation through this mechanism, particularly capital, either positively or nega- tively. I then use my difference-in-differences result with the assumption that the log capital wedge around zero is a good approximation of the efficient allocation of funds. I find that new small firms moved symmetrically from the under-invested position to the over-investment one, with potentially no impact on allocational efficiency. New medium firms went from around efficiency into over-investment territory. I also calculate that if not for favored BNDES credit policy, small firms would be far from the efficiency line. Results on the misallocation exercise are heavily dependent on stringent assumptions, and should be taken with caution. The second essay explores the roll-out of an unusually large scale program to pave feeder roads in Minas Gerais, Brazil, from 2002-2014. I run an event study using the new estimators in the litera- ture, robust to heterogeneous and dynamic treatment effects, to identify the causal impact of paving feeder roads on outcomes of labor markets and firm dynamics. I find that there was a large negative demand shock in the agricultural sector, particularly in food crops, which gen- erated large reductions in planted area and yields, combined with an increase in resignations, mostly initiated by the firm, and a decrease in wages for agricultural workers. I also establish statistically significant but not economically meaningful entry and exit of firms. Services also faced some increase in resignations, although without a lowering of wages and with lower exit rates, suggesting a different dynamics than agriculture. My results suggest that better access to remote towns can have noticeable impacts on agricultural workers. They end up unemployed, sent to informality or they are forced to migrate to other town. Short to medium run transition periods should increase caution among policymakers.