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Aggregate Uncertainty and Sectoral Productivity Growth; The Role of Credit Constraints

Sangyup Choi (), Davide Furceri (), Yi Huang and Prakash Loungani ()

No 16/174, IMF Working Papers from International Monetary Fund

Abstract: We show that an increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance. This effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions. Our statistical method—a difference-in-difference approach using productivity growth for 25 industries for 18 advanced economies over the period 1985-2010—mitigates concerns with omitted variable bias and reverse causality. The results are robust to the inclusion of other sources of interaction effects, such as financial development (Rajan and Zingales, 1998) and counter-cyclical fiscal policy (Aghion et al., 2014). The results also hold if economic policy uncertainty (Baker et al., 2015) is used instead of stock market volatility as the measure of aggregate uncertainty.

Keywords: Productivity; Industry; Economic growth; Manufacturing sector; Developed countries; Econometric models; Time series; productivity growth, financial dependence, uncertainty (search for similar items in EconPapers)
Pages: 43
Date: 2016-08-16
New Economics Papers: this item is included in nep-eff
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Related works:
Journal Article: Aggregate uncertainty and sectoral productivity growth: The role of credit constraints (2018) Downloads
Working Paper: Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints (2017) Downloads
Working Paper: Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints (2017) Downloads
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