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Economic cycle and reallocation of resources: the importance of the creation and destruction of businesses

The objective here is to carry out an empirical analysis of the impact financial constraints have on company survival, and study their implication on the cleansing effect of a recession. This project will use company data and their theoretical model to guide the empirical analysis so as to quantify the impact financial frictions have on the distribution of productivity among outgoing companies as well as on the intensity of the cleansing effect of recessions. The main contribution of this paper will be to produce empirical estimates of the cleansing effect recessions may have.