Farhi, Emmanuel and Tirole, Jean (2025) Too Domestic to Fail: Liquidity Provision and National Champions. Review of Economic Studies, vol.92 (n°1). pp. 268-298.

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Abstract

Authorities’ support policies shape the location and continuation of industrial and banking activity on their soil. Firms’ locus of activity depends on their prospect of receiving financial assistance in distress and therefore on factors such as countries’ relative resilience. We predict that global firms are global in life and national in death; and that they become less global when competition is more intense, times are turbulent, and international risk sharing (say, through swap lines) weak. We analyse the competitive benefits of industrial and banking policies as well as their limitations, such as currency appreciation.