Potential output and microeconomic heterogeneity

Davide Fantino

No 1194, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: I estimate potential output growth using a production function approach applied to individual firm-level data for Italy. The dataset includes 360,000 non-financial corporations over the period 2004-15. I compare these estimates with those obtained from aggregate data, with a view to extracting additional information on the drivers of potential output in recent years. The approach based on individual firm-level data suggests a more sluggish potential growth before the crisis and a stronger recovery afterwards; the main reason is that estimates based on aggregate data are likely to suffer from aggregation biases and endogeneity problems. I find that the contributions of labour and capital to potential output growth decline over time and that unobserved firms’ productivity explains most of the recovery after 2009; turnover has a substantial negative impact during the crisis, but a positive one afterwards. All the main economic sectors are affected by the financial crisis; potential growth in manufacturing is less damaged during the crisis and recovers afterwards; the service sector is recovering slowly, while construction firms are still not recovering.

Keywords: potential output; heterogeneity; aggregation bias (search for similar items in EconPapers)
JEL-codes: D24 E23 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-eff, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1194_18

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