Previous work has claimed that monopoly power facilitates the provision of credit, because monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision because holdup problems ex post will deter borrowers from investing in establishing creditworthiness. Empirically, we examine the relationship between monopoly power and credit provision, using data on the supply relationships of firms in five African countries. Consistent with the up-front investment story, we find that monopoly power is negatively associated with credit provision, and that this correlation is stronger in older supplier relationships. Because the data include several observations per firm, we are able to utilize firm fixed effects, thus netting out unobserved firm characteristics that may have been driving results in earlier studies.

Tax evasion, by its very nature, is difficult to observe. We quantify the effects of tax rates on tax evasion by examining the relationship in China between the tariff schedule and the "evasion gap," which we define as the difference between Hong Kong's reported exports to China at the product level and China's reported imports from Hong Kong. Our results imply that a one-percentage-point increase in the tax rate is associated with a 3 percent increase in evasion. Furthermore, the evasion gap is negatively correlated with tax rates on closely related products, suggesting that evasion takes place partly through misclassification of imports from higher-taxed categories to lower-taxed ones, in addition to underreporting the value of imports.

This paper uses a new methodology based on industry comovement to examine the role of financial market development in intersectoral allocation. Based on the assumption that there exist common global shocks to growth opportunities, we hypothesize that country pairs should have correlated patterns of sectoral growth if they are able to respond to these shocks. Consistent with financial markets promoting responsiveness to shocks, countries have more highly correlated growth rates across sectors when both countries have well‐developed financial markets. This effect is stronger between country pairs at similar levels of economic development, which are more likely to experience similar growth shocks.