Academic
Work in progress
Bad Bank, Bad Luck? Evidence from 1 Million Firm-Bank Relationships [job market paper]
with Peter Lambert (LSE)
Abstract:
This paper studies the effects of bank failure on firm performance. We build a novel dataset on the banking relationships of over 1 million US firms, predominantly composed of small and medium-sized enterprises (SMEs). We then analyze 179 bank failures from 2000 to 2023 to estimate the impact of having bad luck insofar as having formed a relationship with an ex-post bad bank which fails. We find that firms who have a credit relationship to a bank that fails are 28.6% more likely to fail themselves within one year after the bank failure. We also find negative effects on employment and labor demand---which we proxy with job vacancy postings. In the first year following a bank failure, firms that had a credit relationship with the failed bank experience growth rates of nearly half compared to firms banking with healthy banks. These impacts of bank failure on firm performance persist for over 10 years, are present for bank failures both during and outside the US financial crisis period, are strongest for smaller enterprises, and are robust to a host of controls and to sub-samples of banks which fail due to highly exogenous factors. Surprisingly, we observe that a small selection of bank failure events in the US had positive effects on business borrowers revealing that bank failure can, in rare cases, actually be good luck. Overall, our findings suggest that bank failures exert a substantially larger influence on the real economy than previously recognized, possibly requiring a re-evaluation of current regulatory approaches to managing such events.
The Macroeconomic Impact of Chronic Disease in the United Kingdom
with Andrew Scott (LBS)
Abstract:
We examine the macroeconomic consequences of chronic disease in the United Kingdom. We develop a tractable growth model that links individual-level health shocks to aggregate economic outcomes. The model features a population age structure and a distribution of labour supply across age that evolves over time. Each age group's labour supply is decomposed into population size and worker productivity as well as endogenously evolving labour force participation and hours worked. Using data from the UK Household Longitudinal Study (UKHLS) and the Labour Force Survey (LFS), we calibrate how these components of labour supply are affected by the diagnosis of six different chronic diseases. Simulating these effects in our growth model, we estimate that a 20% reduction in chronic disease incidence would boost UK GDP by 1.89% over the next decade. Our results are robust to various model specifications. We discuss the implications of our findings for health policy and argue for increased investment in chronic disease prevention as a strategy for promoting sustainable economic growth.
Machinery of Progress: Charting the Capabilities of Capital Equipment, 1993-2023
with Peter Lambert (LSE)
Abstract:
This paper charts technological progress embodied in capital equipment, and the innovation and diffusion patterns therein. To do this, we digitize archival administrative filings from 1998 to 2024 and extract 50 million capital equipment transactions from five large US States. From these documents, we deploy an `agentic AI' measurement approach, where multiple AI `agents' collaborate to build and validate the data. The final dataset contains the make and model millions of pieces of IT equipment, heavy machinery, agricultural tools, vehicles, robotics, CNC machines, and much more. It also contains equipment-level characteristics, including time varying prices. We use these data to document five facts: First, new capital equipment with substantial productivity-enhancing capabilities takes years or decades to diffuse. Second, capital which is labor-replacing depressing both hiring and wages of lower-skilled workers. Third, equipment which is labor-augmenting drives hiring growth and raises wages for higher-skilled workers. Fourth, the skill-mix of labor is heavily influenced by new capital equipment adoption.
Relocatable Capital: Theory and Empirical Evidence from 35 Million Lien Filings
Abstract:
This paper studies the dynamics of capital reallocation. Leveraging a novel dataset of over 35 million lien filings spanning five US states, this paper documents capital reallocation patterns for over two million unique pieces of heavy equipment and machinery at the serial number level. Reallocation of these capital goods is significantly procyclical and three times as volatile as aggregate output. A dynamic heterogeneous firm general equilibrium model with trade in used and new capital goods is developed to show that the coincidence of lower capital reallocation and lower output can be explained by the asymmetric nature of recessions: smaller, higher-growth firms are affected more in recessions than larger, lower-growth firms. This asymmetry implies that demand for used capital declines disproportionately more than the supply of used capital increases, which results in a lower quantity of used capital traded and a lower price of used capital during recessions. The implication of this explanation is that the lower rate of capital reallocation observed during recessions is partly due to an efficient response of the economy to asymmetric changes in the firm productivity distribution. The model is capable of rationalising a variety of investment-related business cycle moments including the puzzling negative correlation between productivity dispersion and capital reallocation observed in the data.
Policy
Co-authors: Professor Sir John Bell (Ellison Institute of Technology), Tamsin Berry (Ellison Institute of Technology), Professor John Deanfield (UCL), Dr Ines Hassan (Tony Blair Institute), Dr Roshni Joshi (Tony Blair Institute), Professor Andrew Scott (LBS)
Abstract:
In this report, we argue for a shift towards preventative healthcare measures to address the economic challenges posed by an aging population and increasing disease burden. Using our novel model that combines health interventions with macroeconomic indicators, we estimate that a 20% reduction in six major disease categories could boost annual GDP by £26.3 billion within ten years and generate significant fiscal savings. We highlight the potential of treatments targeting multiple conditions, such as GLP-1 RA drugs, to unlock even greater economic benefits. Our case study on cardiovascular disease interventions demonstrates that even targeted treatments can yield substantial long-term economic gains. We emphasize the need for swift implementation of prevention programs and suggest starting with cardiovascular disease-focused initiatives due to available cost-effective interventions. We conclude that prioritizing preventative health measures can create a virtuous cycle of improved health, economic growth, and sustainable healthcare budgets.
Press coverage: The Guardian, Video summary by Sir Tony Blair