Reallocation and productivity during the Great Recession: evidence from French manufacturing firms

Turbulence, firm decentralization, and growth in bad times

Giacomo Domini and Daniele Moschella

Industrial and Corporate Change, 2022, vol. 31, issue 3, 783-810

Abstract: According to the ‘cleansing hypothesis’, recessions are periods in which productivity-enhancing reallocation intensifies, shifting resources away from less efficient to more efficient firms at a faster pace. Does the Great Recession of 2008–2010 fit this view? We address this question, studying the case of the French manufacturing sector. Based on a panel of firms, built by matching several data sources, we analyze the dynamics of the relation between productivity and reallocation over the period 2002–2013. Our results show that, during the Great Recession, more productive firms decreased their advantage with respect to less productive firms, in terms of both employment growth and probability to survive, in disagreement with the cleansing hypothesis. This attenuation of productivity-enhancing reallocation was significantly driven by the trade collapse and credit crunch that were associated with the crisis, while it does not emerge to depend on labor-market regulations and anti-crisis policies.

Date: 2022
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