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Debt overhang: why recovery from a financial crisis can be slow

Satyajit Chatterjee ()

Business Review, 2013, issue Q2, 1-9

Abstract: A particularly troublesome feature of the most recent recession has been the painfully slow growth in employment during the recovery. For employment growth to accelerate, economists believe that firms need to invest in new productive capacity. This view is typically couched in terms of the need to reallocate jobs away from crisis-depressed sectors into other sectors. But doing so requires an expansion in productive capacity in those other sectors. Tepid employment growth is a sign that this investment in new productive capacity has not been forthcoming. One reason for the reluctance to undertake productive investment following a financial crisis is debt overhang, a situation in which the existence of prior debt acts as a disincentive to new investment. There are other explanations that, to varying degrees, account for the current reluctance of U.S. corporations to invest. In this article, Satyajit Chatterjee focuses on the debt overhang problem.

Keywords: Financial crises; Debt; Employment (search for similar items in EconPapers)
Date: 2013
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