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Siddharth George, Mr. Divya Kirti, Soledad Martinez Peria, and Rajesh Vijayaraghavan

in unproductive firms. These results do not change when the analysis controls for the extent to which firms have ties with banks that are less capitalized, rely more on sticky deposit funding, and have higher ratios of nonperforming or restructured loans. This suggests that the effects of firms’ reliance on PSBs are most likely related to these banks’ governance and supervision as opposed to performance. Hence, adoption of policies that aim to improve the governance and supervision of PSBs or that reduce public bank ownership (via privatizations) may be necessary

Nazim Belhocine and Mr. Daniel Garcia-Macia
Italy’s labor productivity in market services has declined since 2000, underperforming manufacturing and peer European countries, especially in strongly regulated sectors. A model of monopolistic competition is used to identify which service sectors would benefit more from removing entry and/or exit barriers. Using Italian firm-level data, the paper finds that sectors with high markups, such as professional services, would primarily benefit from removing entry barriers. Sectors with a large mass of unproductive firms, such as retail, would instead benefit from removing exit barriers. Policy recommendations to improve efficiency are outlined in relation to the sectoral priorities identified in the data.
Nazim Belhocine and Mr. Daniel Garcia-Macia

most advanced economies ( OECD, 2019 ). This paper singles out which sectors in Italy would benefit most from removing entry and/or exit regulatory barriers in relation to their characteristics. A theoretical model of monopolistic competition is developed which predicts that removing entry barriers is most efficient in sectors with high markups, while removing exit barriers is most efficient in sectors with a large number of low productivity firms. Using firm-level data, sectors are classified according to their average markup and mass of unproductive firms. In

Mr. Se-Jik Kim

G − Y 0 B ) . Figure 4 illustrates the decomposition of ( Y t − Y 0 ) into ( Y t G − Y 0 G ) and ( Y t B − Y 0 B ). The figure shows that the restructuring cost in terms of decline in the output of the least-productive firms is modest. The initial output of the least-productive firms ( Y 0 B ) amounts to 0.8 percent of aggregate output, and therefore the loss of output by closing those unproductive firms is 0.8 percent of aggregate output. The figure also indicates that the effect of restructuring on more-productive firms’ production can be substantial

Jorge Alvarez and Cian Ruane

1 Introduction Many developing economies are characterized by large informal sectors which are comprised of unproductive firms and which provide low-paying jobs ( La Porta & Schleifer, 2014) . Two arguments are frequently put forward for why informality might be a contributing factor to aggregate income differences across countries. Firstly, informality may induce a misallocation of capital and labor towards less productive firms thereby lowering aggregate productivity ( Hsieh & Klenow, 2009) . Secondly, informality impedes the proper collection of taxes

Siddharth George, Mr. Divya Kirti, Soledad Martinez Peria, and Rajesh Vijayaraghavan
Capital misallocation is widely thought to be an important factor underpinning productivity and income gaps between advanced and emerging economies. This paper studies how well Indian banks allocate capital across firms with varying levels of productivity. The analysis reveals that the link between productivity and bank credit growth is weaker for firms with significant ties to public sector banks, especially in years when public sector banks represent a large share of new credit. Large flows of credit to unproductive firms represent important missed growth opportunities for more productive firms. These results suggest that measures to improve governance of public sector banks, potentially including privatization, would help reduce capital misallocation.
Jorge Alvarez and Cian Ruane
We assess the aggregate productivity impact of distortions arising from labor regulations in Mexico and how they interact with informality. Using employment surveys and a firm-level economic census, we document a number of novel features about informal firms in Mexico. We then construct and estimate a model of heterogeneous firms and endogenous informality to study the micro and macro impacts from various policy reforms. Some reforms may have large impacts on informal employment but small impacts on aggregate productivity.