A theoretical and empirical exploration into the heterogeneous fragility of Chilean firms and workplaces

Abstract

This dissertation consists of three essays on the heterogeneous reactions of firms to shocks, with particular empirical applications to the Chilean economy. The first essay presents a model of heterogeneity in an economy with financial constraints. The main issue in the model is to characterize the entrepreneurs and firms that are affected by shocks or policy innovations. The model delivers a dual margin composed of a segment of relatively poorer but more productive entrepreneurs and a segment of richer but less productive entrepreneurs. The main result we present in this essay is that these two margins will react heterogeneously to shocks in economically meaningful ways. The second essay is devoted to the construction of the panel and the econometric use of the FUNDES-SII panel firm database. We use this database to study firm creation, destruction and performance on maps of firms. The main result of this essay is that there does seem to be some empirical evidence of a margin of high productivity, low capital entrepreneurs for the Chilean economy, as predicted in the first essay of the thesis. Finally, we find that among smaller firms leverage seems to be an indicator of financial constraint, while among larger firms it is an indicator of financial access.

(cont.) The third essay is devoted to the construction of the panel and econometric use of the INE-BFL panel worker database to study workplace creation and destruction in Chile. For local interest, the main feature of the chapter is that it is the first time that representative and consistent series of job creation and destruction that is made available for the Chilean economy. The main feature of the chapter, however, is the estimation and characterization of workplace fragility by firm size. We estimate separation, matching and bankruptcy probabilities, and inquire into their sensitivity to the economic cycle.