Hutchins Roundup: Dodd-Frank, productivity mismeasurement, and more
Studies in this week’s Hutchins Roundup find that Dodd-Frank incentivized banks to provide more mortgage credit to wealthy households and less to middle-class borrowers, taking account of profit-shifting by multinationals reduces but does not eliminate the post-2004 productivity growth slowdown, and more.
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Dodd-Frank triggered redistribution of credit from middle-class to wealthy households
Francesco D’Acunto and Alberto Rossi of the University of Maryland find that the Dodd-Frank financial regulation reform increased the costs of originating mortgages and encouraged financial institutions, especially large banks, to supply more mortgages to wealthier households and fewer to middle-class borrowers. In particular, between 2010 and 2014, financial institutions reduced their lending for medium-sized loans by 15 percent and increased their lending for large loans by 21 percent as a result of the regulation, the authors find. Low-income borrowers were unaffected, perhaps because they are protected by the Fair Lending Act.
Accounting for profit-shifting by multinationals reduces, but does not eliminate, post-2004 productivity growth slowdown
Official statistics show a significant slowdown in US productivity growth since the early 2000s. One potential explanation is that output has been mismeasured due to an increase in offshore profit shifting by multinational corporations. Using confidential data on US multinationals for 1982-2014, Fatih Guvenen of the University of Minnesota, Raymond Mataloni Jr. and Dylan Rassier of the US Bureau of Economic Analysis, and Kim Ruhl of Pennsylvania State find that properly accounting for profit-shifting raises annual productivity growth by 0.1 percentage points for 1994-2004 and 0.25 percentage points for 2004-2008, but has no effect on productivity growth after 2008.
Management practices are as important for manufacturing plant productivity as R&D
Using novel survey data on 32,000 US manufacturing plants, Nicholas Bloom of Stanford and co-authors conclude that there is substantial variation in management practices even across plants within the same firm. This variation in management practices explains about a fifth of the spread of productivity between plants in the 10th and the 90th percentiles, similar to the fraction explained by differences in research and development investment, and roughly twice as much as explained by information technology expenditure per employee and employee skills. The authors identify four key drivers of management: competition, business environment, learnings spillovers, and human capital.
Chart of the week: Global fiscal policy this year is projected to neither add nor subtract much from global GDP
Quote of the week: “[I]t is not surprising that the Dodd-Frank Act implementation has been a major undertaking, that banks (and sometimes supervisors) feel overwhelmed by the breadth of the resulting compliance effort, and that there is some overlap among some of the regulations,” Daniel Tarullo says in his final speech as a Fed governor.
“This outcome was, in effect, the price of the largest banks not being subject to a direct structural solution such as breakup. None of this is to say that the Dodd-Frank Act got the mix of restrictions just right. To the contrary, it would have been surprising for such a major piece of legislation passed in the immediate aftermath of the crisis to have done so. Usually, a law like the Dodd-Frank Act would have been followed some months later by another law denominated as containing technical corrections, but also usually containing some substantive changes deemed warranted by analysis and experience. But partisan divisions prevented this from happening. And the novelty of many of the forms of regulations adopted by financial regulators, either in implementing the Dodd-Frank Act or under existing authorities, almost assures that some recalibration and reconsiderations will be warranted on the basis of experience.”