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School of Economics and Finance · Te Kura Ohaoha Pūtea: Working Paper Series

Permanent URI for this collectionhttps://ir.wgtn.ac.nz/handle/123456789/21216

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Browsing School of Economics and Finance · Te Kura Ohaoha Pūtea: Working Paper Series by Author "Cao, Shutao"

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    Accounting for productivity growth in a small open economy: Sector-specific technological change and relative prices of trade
    (Te Herenga Waka—Victoria University of Wellington, 2017) Cao, Shutao
    Many economies experienced a slowdown of measured productivity in the 2000s, coinciding with the commodity price boom. We use a multisector growth model for a small open economy to quantify the contribution of sector-specific technology and relative prices of trade to productivity slowdown. We show that the effective aggregate total factor productivity consists of two components: the weighted average of sector-specific technology, and the weighted averaged of domestic-export price ratios which reflect export costs. This extends the Domar aggregation result of Hulten (1978). When calibrated to the Canadian data, the model suggests that productivity slowdown was mainly attributed to two sectors: commodity; machinery and equipment. Cross-country data show that, in two thirds of countries that experienced productivity slowdown, slower productivity growth in sectors serving domestic market was a dominant factor, while in the other one third, reduced domestic-export price ratio played a major role.
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    Financial constraints and productivity: Evidence from Canadian SMEs
    (Te Herenga Waka—Victoria University of Wellington, 2017) Cao, Shutao; Leung, Danny
    The degree to which financial constraints are binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small and medium-sized Canadian firms. Our measure separates the need for financing from the degree of being constrained, conditional on the need for financing. We find that firm size, the current debt-to-asset ratio and cash flow are robust indicators that can be used as a proxy for financial constraint. The total debt-to-asset ratio is not, however, a statistically significant indicator of financial constraint. In addition, firms with higher cash flow are less likely to need external financing and to be constrained if they do need it. We then estimate the firm-level total factor productivity by taking into account the measured likelihood of binding financial constraints. Coefficient estimates for labor and capital in the structural estimation of production function can be downward biased if financial constraints are omitted, because production inputs are negatively correlated with the likelihood of being constrained by external financing. This in turn leads to an upward bias in total factor productivity, which is about 4 percent according to our estimation. Finally, both investment and employment growth are negatively affected by the measured degree of financial constraints, pointing to the contribution of financial constraints to misallocation.