Financing constraints are an important research subject in the economic literature, which attempts to explain why firms do not undertake profit maximizing investment, i.e. why they do not expand their capital stock if return to capital is above the market interest rate (Hubbard, 1998). Credit constraints now figure prominently in macroeconomic analysis, and there is strong evidence from cross country regressions that underdeveloped financial systems are associated with poor investment and growth. The microeconomic evidence, especially from the developing country data, remains limited. Establishing evidence of credit constraints from microeconomic data is difficult, because measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock.
This paper identifies a natural experiment based on a firms decision to invest in a private electric generator. Reinikka and Svensson (2002) demonstrated that firms tend to invest in own electric power generators in countries with unreliable public power supply. Supply shocks to public power supplies are generally uncorrelated with an individual firms market conditions and entrepreneurial ability. This study exploits these exogenous public power supply shocks to identify the effect of financing constraints on firms investment.
This guide is intended for beginners, and is not intended to be a complete dissection of all the intricacies of the technical process. The goal is to enable the beginner to start using the Internet today without knowing all the technicalities involved, but will be able to harness the power and excitement of the Internet. Simplified explanations of what is happening are usually not exactly what is going on, but they allow the concepts behind the technology to be learned easily.
The consequences of job security provisions for employment, output, and welfare constitute an issue of great concern for economists and policymakers. Labor market rigidities, particularly those regarding workers’ layoffs, are commonly blamed for the high European unemployment rates (see OECD, 1994a, for an example of this view). Following this belief and hastened by the worsening of unemployment rates during the 1980s, several European countries undertook institutional reforms aimed at deregulating labor markets.
A common feature of these reforms was the elimination of most restrictions on the use of non-causal fixed-term (also called temporary) contracts, which are characterized by much lower firing costs than those of permanent contracts. Since their introduction, fixed-term contracts have accounted for most new hirings in all sectors and occupations (OECD, 1993). Spain, with the highest unemployment rate among the industrialized countries, is a paradigmatic case. After the 1984 reform that allowed the widespread signing of non-causal fixed-term contracts, Spain has become the European country with the highest share of temporary employment: 32 percent in 2000. In addition, temporary contracts accounted for more than 98 percent of hires in the period right after the reform. Dolado et al. (2002) provide an informative survey of the Spanish experience with fixed-term jobs.
