Investment in Productivity and the Long-Run Effect of Financial Crises on Output

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper analyzes the channels through which financial crises exert long-term negative effects on output. Recent models suggest that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 519 U.S. corporations responsible for 54% of industrial research and development. Exploiting quasi-experimental variation in firm-level exposure to the 2008-9 financial crisis, I show that tight credit reduced investments in productivity-enhancement, and has significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests output would be 12% higher today if productivity-enhancing investments had grown at pre-crisis rates.

Keywords: Financial Crises; Endogenous Growth; Innovation; Business Cycles (search for similar items in EconPapers)
JEL-codes: E32 E44 O30 O47 (search for similar items in EconPapers)
Date: 2016-10-05
New Economics Papers: this item is included in nep-mac
Note: mcd58
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Citations: View citations in EconPapers (13)

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http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1659.pdf

Related works:
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in Productivity and the Long-Run Effect of Financial Crises on Output (2016)
Working Paper: Investment in productivity and the long-run effect of financial crises on output (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1659

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