Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic

Guido Ascari, Andrea Colciago and Riccardo Silvestrini ()

No 482, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: Asymmetric effects across sectors are the distinctive features of the Covid-19 shock. Business Formation Statistics in the United States show a reallocation of entry and exit opportunities across sectors in the initial phase of the pandemic. To explain these facts, we propose an Epidemiological-Industry Dynamic model with heterogeneous firms and endogenous firms dynamics. Our analysis suggests that the cleansing effect on business dynamism of the Covid-19 crisis, which typically characterizes recessions, is sector-specific. The framework can rationalize the dynamics of aggregate productivity during the crisis. Monetary policy and sticky wages are central ingredients to capture reallocation effects. Social distancing, by smoothing out cleansing in the social sector, slows down the reallocation process and prolongs the recession, but saves lives.

Keywords: Covid-19; Productivity; Entry; Reallocation. (search for similar items in EconPapers)
JEL-codes: E3 I3 L16 (search for similar items in EconPapers)
Pages: 74
Date: 2021-09, Revised 2021-09
New Economics Papers: this item is included in nep-dge, nep-ent, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Business dynamism, sectoral reallocation and productivity in a pandemic (2023)
Working Paper: Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic (2021)
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