Persistent Misallocation and the Productivity Slowdown in EU

Shalini Mitra

No 201812, Working Papers from University of Liverpool, Department of Economics

Abstract: Why did the productivity slowdown in EU happen at a time of increasing financial market deregulation and generally easing credit conditions? The fact that productivity growth was declining at a time of rising credit is in contrast to the standard prediction of macroeconomic models which find a positive relation between credit and productivity growth. I argue in this paper that if the conventional channel though which such a productivity increase occurs - the reallocation of capital from less to more productive businesses - is impaired, then a decline in credit constraints has the opposite effect in the standard model and aggregate productivity declines. There is in fact ample evidence in the literature to support the impairment of capital reallocation in the EU during this period.

Keywords: capital misallocation; financial constraints; heterogenous firms; productivity slowdown; aggregate productivity; EU (search for similar items in EconPapers)
JEL-codes: D24 D25 D5 D61 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2018-04
New Economics Papers: this item is included in nep-dge, nep-eff, nep-ent and nep-fdg
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https://www.liverpool.ac.uk/media/livacuk/schoolof ... economics/201812.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:201812

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