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

Maarten De Ridder

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: Financial crises; endogenous growth; innovation; business cycles (search for similar items in EconPapers)
JEL-codes: E32 E44 O30 O47 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-09-30
New Economics Papers: this item is included in nep-eff, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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http://eprints.lse.ac.uk/86180/ Open access version. (application/pdf)

Related works:
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86180

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