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Recessions and total factor productivity: Evidence from sectoral data

Davide Furceri, Sinem Kilic Celik, Joao Jalles and Ksenia Koloskova

Economic Modelling, 2021, vol. 94, issue C, 130-138

Abstract: The recent COVID-19 crisis has generated a concern that productivity (which was already at historically low levels) may further decline. From a theoretical standpoint, the recessions-total factor productivity (TFP) nexus is ambiguous à priori. This paper empirically examines the dynamic impact of recessions on TFP. We compute a new measure of utilization-adjusted productivity from a sample of 24 industries in 18 advanced economies between 1970 and 2014. Resorting to the local projection method we trace out the dynamic short to medium-term impact of such recessionary shocks. We find that deep recessions lead to a permanent deterioration in the level of total factor productivity. This effect is driven by the increase in resource misallocation across different sectors.

Keywords: Recessions; Impulse response functions; Productivity; Local projection; Reallocation effects; Sector-level data (search for similar items in EconPapers)
JEL-codes: D24 E23 E44 F45 O14 O47 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
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DOI: 10.1016/j.econmod.2020.09.025

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