In troubled times, it is crucial to understand how adverse shocks affect the economy, in particular firms and workers, in order to design evidence-based policy countermeasures.
This project aims to provide novel insights on the determinants of firms' performance in times of distress and study the impact on labor markets.
First, we will adopt a firm-level perspective to explore resilience to the exposure to financial and real crises. We will look at the main drivers of firms' success and fragility in the aftermath of the Lehman and sovereign debt shocks. Moreover, we will explore the impact of the COVID-19 outbreak on Italian firms. Specifically, we will outline the role of innovativeness and internationalization patterns, with a focus on global value chains. We will then explore the effects of one of the most relevant real shocks in developing countries: war. We will study the effect of the Second Libyan Civil War on Libyan firms' performance.
Second, we will investigate the role of firms' financial condition in their capacity to cope with shocks. We will identify various types of financial fragility and explore how their interaction with firms' strategic behaviors may affect their response to adverse conditions. In particular, we will dig deeper into policy effectiveness in a crisis by presenting evidence on credit guarantees and public incentives for innovation.
Finally, we will turn to study the labor market and labor institutions. First, we will consider Italy and investigate the role of two essential features of its economy: the collective wage setting, that makes nominal wages homogeneous across space, and the variability of prices at the local level, that makes real wages differ across areas. Second, we will look at the UK to assess the role played by another crucial institution: the minimum wage. The analysis of nominal and real wage dynamics and wage setting institutions will be relevant for assessing workers' vulnerability in troubled times.
The evolving and different nature of the crises possibly hitting an economic system calls for a continuous update of our knowledge of the impact of adverse shocks. On the top of the novel evidence brought by each of the listed projects, our work will innovate the literature in several substantial ways.
First, we will contribute to the literature on financial and real shocks by providing evidence based on newly-available data on the sovereign debt crisis and the COVID-19 pandemic. In addition to the use of the widest survey administrated in a single European country (the MET dataset), we will administer an ad hoc survey designed to monitor the effect of the pandemic on 7800 firms. The alignment of these datasets will allow us to construct a panel of companies and exploit a short-window identification strategy to study the effect of the COVID-19 outbreak. We will exploit this feature to conduct a diff-in-diff approach allowing for a neat identification of the shock. Moreover, information of forward-looking expectations on sales and prices will allow to contribute to this fast-evolving literature by clearly disentangling the relative importance of supply and demand elements embedded in the aggregate shock. As for the effects of alternative real shocks we will also contribute to the literature on conflict in three main ways. First, this is going to be the first analysis using the geo-localization of firms and conflict events to construct a firm-level measure of exposure and estimate the effect of the shocks. Second, we will explore non-linearities in the negative effect of conflict on firm economic performance. Third, we will show that the effect is the result of the conflict-induced reduction in the availability of imported intermediate inputs and of foreign workers, and the change in the level of market competition.
Additionally, we will add to studies on GVC. In analyzing the effect of governance modes on innovation and export performance we will design a novel classification of governance regimes. More specifically, we will employ threshold regression techniques to detect non-linearities in the effect of intermediate supply intensity upon firms' innovative outcomes. Furthermore, we will study for the first time the interaction between supply chains, financial issues, and innovations. We envisage two possible channels in this effect. On the one hand (substitution channel), supply chains could help circumventing the obstacles to innovation generated by financial constraints, especially when these arise from financiers external to supply chains (e.g. banks). On the other hand (complementarity channel), firms' participation in supply chains could magnify the impact of financial constraints on innovation by hindering liquidity provision within the supply chain and inhibiting firms' purchase of innovative inputs. From an empirical perspective, we will deal with the endogeneity of financial constraints and supply chain participation with a novel IV strategy relying on pre-crisis exposure of the lender bank to the sovereign debt crisis (i.e. stock of 2006 holding of sovereign debt in the bank asset portfolio) and firms' degree of digitalization (which facilitate coordination of the production at the value-chain level).
Our project will also enrich the literature on policy evaluation by focusing on credit guarantees and public incentives for innovation. In particular, we will explore the partial coverage ratio to apply a new approach aimed at identifying the minimum level of effectiveness for guarantees and the optimal amount for maximization of guarantees effectiveness. Specifically, we will apply a novel treatment model, a 'dose-response function', whereby the partial coverage ratio is regarded as a measure of the exposure to treatment (or dose) delivered by the CGSs. Moreover, we will take advantage of Regression Discontinuity Design techniques to estimate the causal effects of R&D policies on the firms' share of intangible assets, turnover, number of employees, and number of partners.
We will also innovate the urban and labor economics literature in several ways. First, we will build an original dataset matching detailed information at the worker and firm level drawn from Inps archives with data on housing prices at the municipality level provided by the Italian Revenue Agency. Second, to the best of our knowledge, we will be the first to compute real wage premia in Italy at the local (municipality or local labor market) level. Third, we will implement a comparative analysis on employees and various groups of self-employed workers that is something rather neglected in the relevant literature and represents an additional valuable contribution of the project. Fourth, we will for the first time apply the Combest et al (2008) two-stage strategy for the estimation of wage elasticities to Italy.