Long and short-term effects of the financial crisis on labour productivity, capital and output

Nicholas Oulton and Maria Sebastia-Barriel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The behaviour of labour productivity in the United Kingdom since the onset of the recessionin early 2008 constitutes a puzzle. Over four years after the recession began labourproductivity is still below its previous peak level. This paper considers the hypothesis thateconomic capacity can be permanently damaged by financial crises. A model which allows afinancial crisis to have both a short-run effect on the growth rate of labour productivity and along-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The mainfinding is that a banking crisis as defined by Reinhart and Rogoff on average reduces theshort-run growth rate of labour productivity by between 0.6 and 0.7 per year and thelong-run level by between 0.84 and 1.1 (depending on the method of estimation), foreach year that the crisis lasts. A banking crisis also reduces the long-run level of capital perworker by an average of about 1. The effect on GDP per capita is about double the effecton GDP per worker since there is a long-run, negative effect on the employment ratio.

Keywords: productivity; financial; banking crisis; recession (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2013-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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http://eprints.lse.ac.uk/48926/ Open access version. (application/pdf)

Related works:
Working Paper: Long and short-term effects of the financial crisis on labour productivity, capital and output (2013)
Working Paper: Long and Short-Term Effects of the Financial Crisis on Labour Productivity, Capital and Output (2013)
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