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Investment in productivity and the long-run effect of financial crises on output

de Ridder, Maarten (2016) Investment in productivity and the long-run effect of financial crises on output. CFM discussion paper series (CFM-DP2016-30). Centre For Macroeconomics, London, UK.

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Abstract

This paper analyzes the channels through which financial crises exert long-term negative effects on output. Recent models suggest that a shortfall in productivity-enhancing invest- ments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 519 U.S. corporations responsible for 54% of industrial research and development. Exploiting quasi-experimental variation in firm-level exposure to the 2008-9 financial crisis, I show that tight credit reduced investments in productivity-enhancement, and has significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests output would be 12% higher today if productivity-enhancing investments had grown at pre-crisis rates.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2016 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O30 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 12 Dec 2017 12:29
Last Modified: 28 Aug 2019 23:27
URI: http://eprints.lse.ac.uk/id/eprint/86180

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