Forthcoming — Journal of Political Economy: Macroeconomics
Why are Manufacturing Plants Smaller in Developing Countries? Theory and Evidence from India
Anil K. Jain & Siddharth Kothari (IMF)
Poorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This paper presents empirical evidence and a theoretical model to show that this relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants. First, using data for India, we show that richer households buy higher price goods and larger plants produce higher price products. Second, we develop a model that matches these facts. Finally, we find that our model explains about forty percent of the cross-state variation in the size distribution of manufacturing plants in India.
Journal of Financial Intermediation — October 2022
Finance and Inequality: The Distributional Impacts of Bank Credit Rationing
Anil K. Jain & Ali Choudhary
We analyze reductions in bank credit using a natural experiment where unprecedented flooding differentially affected banks that were more exposed to flooded regions in Pakistan. Using a unique dataset that covers the universe of consumer loans in Pakistan, we find that banks disproportionately reduce credit to new and less-educated borrowers following an increase in funding costs, and this credit reduction is not compensated by relatively more lending by less-affected banks.
Journal of Banking and Finance — December 2021
Corporate Stress and Bank Nonperforming Loans: Evidence from Pakistan
Anil K. Jain & Ali Choudhary
Using detailed administrative Pakistani credit registry data, we show that banks with low leverage ratios are both significantly slower and less likely to recognize a loan as nonperforming than other banks that lend to the same firm. This lack of recognition impedes loan curing, with banks with low leverage ratios reporting significantly higher final default rates. Our findings are consistent with the theoretical prediction that classifying a nonperforming loan is more expensive for banks with less capital.
Economic Theory — April 2021
The Economics of Platforms in a Walrasian Framework
Anil K. Jain & Robert Townsend (MIT)
We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The model is applicable to the recent growth in digital currency platforms. The economy is Pareto efficient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts.
Journal of Development Economics — March 2020
How Public Information Affects Asymmetrically Informed Lenders: Evidence from a Credit Registry Reform
Anil K. Jain & Ali Choudhary
We exploit exogenous variation in a firm's public information available to banks to empirically evaluate the importance of adverse selection in the credit market using a Pakistani banking reform that reduced public information. We find that banks with private information about a firm lent relatively more to that firm following the reform, even for banks with preexisting relationships with the firm, suggesting prior relationships do not eliminate imperfect information problems.
Revision Requested — Review of Financial Studies
Timing Lumpy Investments with Informal Bridge Loans and Clunky Formal Loans: Evidence from Thailand
Anil K. Jain, Robert Townsend (MIT) & Fan Wang (University of Houston)
This paper theoretically and empirically explores formal and informal credit market interactions where informal credit access can help to complete a borrower's choice set. Using Thai household data, we document the co-existence of formal and informal loans for the same household. We show that households can exploit flexible short-term informal loans as bridging loans, rolling a sequence of short-term formal loans into longer-term debt, and evaluate the effects of increasing the supply of formal loans on household welfare in village economies.
Revision Requested — Journal of Economic Literature
The Sources of Researcher Variation in Economics
Anil K. Jain, Nick Huntington-Klein (Seattle University), Claus C. Pörtner (Seattle University), and others
We use a rigorous three-stage many-analysts design to assess how different researcher decisions—data cleaning, research design, and interpretation—affect variation in estimated treatment effects. A total of 146 research teams each completed the same causal inference task three times. We find that even when analyzing the same data, teams reach different conclusions, and that data cleaning standardization is the most powerful lever for reducing researcher variation.
Revision Requested — Journal of Financial Services Research
Identifying the Marginal Borrower under Adverse Selection: A Simple Model
Anil K. Jain
This paper presents a simple model of financial intermediation between a monopolist lender and credit-constrained entrepreneurs with private information. The main result is that as the lender's funding cost increases, those entrepreneur groups with a higher degree of adverse selection are more affected — facing larger credit reductions and higher interest rates.
Under Review
Do Banks Gain from Inflation? Evidence from Inflation Surprises
Anil K. Jain & Nathan Converse (Federal Reserve Board)
Using a high-frequency event study, we examine the effect of inflation on bank profitability by analyzing banks' risk-adjusted stock returns around U.S. CPI releases. We find that bank stocks outperform the broader market on higher-than-expected inflation prints, with the relationship substantially larger during high inflation periods. The key channel is higher-than-expected inflation causing interest rates to rise and bank profits to rise through incomplete passthrough to deposit rates.
Working Paper
Credit Access and Relational Contracts: An Experiment Testing Informational and Contractual Frictions for Pakistani Farmers
Anil K. Jain & Ali Choudhary (State Bank of Pakistan)
Using a novel three-stage experimental design in Pakistan, we document that bank lending only serves a small fraction of rural credit demand. We test informational and enforcement technology frictions and find that enforcement technology is the primary friction limiting bank lending. A motivated and interlinked intermediary may be one solution to overcome this financial friction.
Working Paper
Financing Repeat Borrowers: Designing Credible Incentives for Today and Tomorrow
Anil K. Jain & Piruz Saboury (University of Houston)
We analyze relationship lending when borrower cash flows are not contractible and intermediation costs vary over time. Borrowers condition loan repayment on the likelihood of receiving future loans, making their beliefs about the lender's future liquidity important. The possibility of high future lending costs weakens repayment incentives and causes inefficient under-provision of credit, with implications for microfinance.
Working Paper
Efficient Public Good Provision in Networks: Revising the Lindahl Solution
Anil K. Jain
I examine a model where each agent's effort provides heterogeneous benefits to others, inducing a network of opportunities for favor-trading. Focusing on the Lindahl solution as an efficient benchmark, I show that efficient mechanisms do not necessarily imply incentives for efficient investment in production technology. I provide comparative statics with network interpretations and suggest welfare-improving interventions.
Journal of Risk and Financial Management — December 2022
Global Spillovers of a Chinese Growth Slowdown
S. Ahmed, R. Correa, D. Dias, N. Gornermann, J. Hoek, Anil K. Jain, Edith Liu & A. Wong
This paper analyzes the potential spillovers of a slowdown in Chinese growth to the United States and the rest of the world. Through structural VAR and DSGE analyses, we find that spillovers from China have grown significantly in the past decade. Negative growth spillovers to the U.S. are amplified significantly if the shock leads to adverse global risk sentiment and monetary policy is constrained in its reaction.