Do Crises Catalyze Creative Destruction? Firm Level Evidence From Indonesia. Mary Hallward-Driemeier and Bob Rijkers ACES/AEA, January 8, 2012. Do crises facilitate or hamper a more efficient allocation of resources?. COMPETING THEORETICAL PARADIGMS: The “Cleansing” Hypothesis:
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Mary Hallward-Driemeier and Bob Rijkers
ACES/AEA, January 8, 2012
Crises accelerate the Schumpetarian (1939) process of creative destruction (Caballero and Hammour 1994).
Crises obstruct the reallocativeprocess (Barlevy, 2002; Ouyang 2009)
(Davis and Haltiwanger, 1990, 1992; Caballero and Davis, 1995; Boeri, 1996)
(Griliches and Regev, 1995, Bailey et al. 1998; Davis et al, 1996)
(Bergoeing et al., 2005, Blalock and Gertler, 2006, Gallego and Tessadda, 2009)
(Nishimura et al, 2005)
(Tybout and Liu 1995: Casacuberta and Gandelsman: 2009)
If crises are cleansing:
What accounts for the observed patterns?
Is the political crisis more cleansing?
Suharto fell in the spring of 2008, but time alone is not enough to distinguish the political crisis. Data can identify those where a Suharto family member has an ownership stake, and/or is on the board (Mobarak and Purbasari, 2008).
- Does productivity play a stronger role in connected firms?
- Are the general results robust to the exclusion of connected firms?
Exit rates were higher during the crisis.
Peak in 2001 reflects the economic slowdown, but is magnified by splits in provinces where plants were seen to exit and reenter (results robust to excluding 2001)
Excess churning and net job destruction during the crisis, 1997-98
FHK Decomposition of the growth of real value added per worker
“within” “between” “cross
“proportionate entry” “disproportionate entry” “exit”
Do see increasing cross and proportionate entry. But negative contribution of exit.
Discrete-time logistic survival model (Cox, 1972)
Our strategy: Interact explanatory variables over time to examine how the determinants of survival vary over time:
Crises have no differential impact on creative destruction (in the short-run)
Crises accelerate creative destruction (in the short-run)
Crises attenuate creative destruction (in the short-run)
Robustness tests passed but not presented:
Connected firms were far more likely to exit post-Suharto, but less so for productive firms.
NB: testing strategy is analogous to that for the survival model
Crises has no differential impact on the reallocative efficiency of employment growth
Crises improves the reallocative efficiency of employment growth
Crises weakens the reallocative efficiency of employment growth