Misallocation and the Credit Cycle: Evidence from Europe

Economic Scarring: Channels and Policy Implications

“…It reveals the desired investment that cannot be financed through internal cash flow generated by the median company in the sector. Franco (2018) provided the classification of 2-digit NACE sectors into high, medium, and low levels of external financial dependence. Another factor that is critical to firm financial constraint is the stress of private balance sheets is the initial conditions -given business activities, firms in countries that entered a crisis with higher levels of indebtedness are more likely to suffer from a prolonged period of limited access to finance, hence lower capital and R&D investments.…”