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

Sangyup Choi, Davide Furceri, Yifei Huang and Prakash Loungani

No 2016/174, 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: WP; external finance; TFP growth; productivity growth; financial dependence; uncertainty; aggregate productivity shock; productivity-enhancing investment; sectoral TFP growth; expected TFP growth; differential effect in TFP growth; sectoral productivity growth; growth rate; productivity-enhancing reallocation; differential effect; TFP growth change; industry TFP growth remains of the sign; industry TFP; Total factor productivity; Productivity; Labor productivity; Stock markets; Output gap; Global (search for similar items in EconPapers)
Pages: 43
Date: 2016-08-16
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Aggregate uncertainty and sectoral productivity growth: The role of credit constraints (2018)
Working Paper: Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints (2017)
Working Paper: Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints (2017)
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