Essays in Macroeconomics and Firm Dynamics

Abstract

This dissertation consists of three essays in macroeconomics and firm dynamics. In the first essay, I study the role of ownership structure on firm-level hiring rules by investigating how firms make employment decisions focusing on those who belong to business groups. To do that end, I use the confidential Korean firm-level data and document novel empirical facts about the employment behavior of firms who belong to business groups in Korea, also known as Chaebol, which is significantly different from non-group firms and provide empirical and theoretical explanations for these new facts. I show that these facts are related to the group-level employment policy based on spillover effects and heterogeneous roles by business groups. In the second essay, I use Korean plant-level data in Korea and study productivity slowdown after the Global Financial Crisis of 2007-08. Applying the dynamic Olley/Pake productivity decomposition method, I find that decrease in allocative efficiency among continuing firms accounts for the collapse of productivity growth in the post-crisis period (2010-2015) by about 80$\%$. Another novel empirical finding is that big and the most productive firms contribute to the productivity slowdown the most while their market shares are not adjusted accordingly. Finally, in my last essay, I investigate macroeconomic implications of financial frictions in an economy where a market structure is endogenously determined. To that end, I develop a model of heterogeneous firms that face the linear demand system, generating a distribution of endogenous markups. The model predicts a negative selection effect of misallocation due to financial frictions by allowing unproductive firms to operate when the degree of competition is endogenously determined through the distribution of markups. This suggests an important role of the endogenous market structure in amplifying misallocation effects due to financial frictions.