Learning by necessity: government demand, capacity constraints, and productivity growth

Ethan Ilzetzki

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

Abstract: This paper studies how firms adapt to demand shocks when facing capacity constraints. I show that increases in government purchases raise total factor productivity in quantity units at the production-line level. Productivity gains are concentrated in plants facing tighter capacity constraints, a phenomenon I call “learning by necessity”. Evidence is based on newly digitized archival data on USWorldWar II aircraft production. Shifts in demand across aircraft with different strategic roles provide an instrument for aircraft demand. I show that plants adapted to surging demand by improving production methods, outsourcing, and combating absenteeism, primarily when facing tighter capacity constraints.

JEL-codes: D20 D24 E62 L93 N12 N42 N62 (search for similar items in EconPapers)
Date: 2024-08-01
New Economics Papers: this item is included in nep-eff and nep-ipr
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Citations: View citations in EconPapers (2)

Published in American Economic Review, 1, August, 2024, 114(8), pp. 2436 – 2471. ISSN: 0002-8282

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http://eprints.lse.ac.uk/124150/ Open access version. (application/pdf)

Related works:
Journal Article: Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth (2024)
Working Paper: Learning by necessity: Government demand, capacity constraints, and productivity growth (2023)
Working Paper: Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth (2023)
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