Investment in Productivity and the Long-Run Effect of Financial Crises on Output

Maarten De Ridder

No 6243, CESifo Working Paper Series from CESifo

Abstract: This paper identifies the mechanism through which financial crises exert long-term negative effects on output. Theory suggests that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 522 U.S. corporations responsible for 58% of industrial research and development. Exploiting exogenous variation in firm-level exposure to the Global Financial Crisis, I show that tight credit reduced investments in productivity-enhancement, and significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests GDP would be at least 3.2% higher today if productivity-enhancing investment intensity had remained at its pre-crisis level.

Keywords: financial crises; endogenous growth; innovation; business cycles (search for similar items in EconPapers)
JEL-codes: E32 E44 O30 O47 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in productivity and the long-run effect of financial crises on output (2016)
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