The financial crises or “sudden stops” of the last decade in emerging economies were accompanied by a large fall in total factor productivity. In this paper we explore the role of financial frictions in exacerbating the misallocation of resources and explaining this drop in TFP. We build a...

Financial crises cause a significant reallocation of labor as relative prices change drastically and economies confront a variety of shocks. Using household survey data for Mexico, we show that gross and net labor flows between industries and occupations increase substantially during the 1994-95...