Effects of financial crises on productivity, capital and employment

Nicholas Oulton and María Sebastiá-Barriel

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

Abstract: We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labor productivity and a long-run effect on its level is estimated on 61 countries over 1954–2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1 percent, for each year that the crisis lasts; it also reduces the TFP level by 0.8%. The long run, negative effect on the level of GDP per capita, 1.8 percent, is substantially larger. So there is also a hit to employment. The effects on labor productivity, capital and TFP are larger in developing than in developed countries; the opposite is the case for employment.

Keywords: banking crisis; financial; potential output; productivity; recession (search for similar items in EconPapers)
JEL-codes: E23 E32 J24 (search for similar items in EconPapers)
Date: 2017-02-01
New Economics Papers: this item is included in nep-eff, nep-fdg and nep-mac
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Citations: View citations in EconPapers (17)

Published in Review of Income and Wealth, 1, February, 2017. ISSN: 0034-6586

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Related works:
Journal Article: Effects of Financial Crises on Productivity, Capital and Employment (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:68541

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