Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth

Ethan Ilzetzki

American Economic Review, 2024, vol. 114, issue 8, 2436-71

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 US World War 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: D22 D24 E62 L93 N12 N42 N62 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: 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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DOI: 10.1257/aer.20230033

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