Recessions and total factor productivity: Evidence from sectoral data

Abstract

The recent COVID-19 crisis has generated a concern that productivity (which was already at historically low levels) may further decline. From a theoretical standpoint, the recessions-total factor productivity (TFP) nexus is ambiguous à priori . This paper empirically examines the dynamic impact of recessions on TFP. We compute a new measure of utilization-adjusted productivity from a sample of 24 industries in 18 advanced economies between 1970 and 2014. Resorting to the local projection method we trace out the dynamic short to medium-term impact of such recessionary shocks. We find that deep recessions lead to a permanent deterioration in the level of total factor productivity. This effect is driven by the increase in resource misallocation across different sectors.

Hysteresis and full employment in a small open economy

“…Synonymous output and employment dynamics do not match historical empirical evidence well. The ratio of the peak fall in TFP relative to output in our model is 0.39, which compares closely to the empirical evidence presented by Furceri et al (2021) who find a value of 0.42 following recessions in 18 advanced economies between 1970 and 2014. Defining the degree of hysteresis as the ratio of the fall in output in the final period to the fall in output in the initial period as in Kienzler and Schmid (2014) and Rawdanowicz et al (2014), we find a degree of hysteresis of 0.19 after four years.…”

“…Consistent with the evidence presented by Jordà et al (2020), where hysteresis and credit constraints are incorporated into the model, output can remain persistently below its initial trend, whereas employment can recover to its initial steady state level within typical business cycle frequencies. Our model also generates an empirically plausible degree of hysteresis based on the evidence of Furceri at al. (2021), Kienzler and Schmid (2014),…”

Analysing the Pattern of Productivity Change in the European Energy Industry

“…This average value suggests that the European energy industry only achieved modest productivity growth, while the MPI values indicate that the productivity development path followed a procyclical pattern in the period considered in the present study. Labour productivity procyclicality has already been observed in the EU [44][45][46] but not at the energy industry level. Looking at the trends, the European energy industry, which is represented by the 19 largest companies, shows a slight downward movement with a compound rate of change of 0.093%.…”

Financial contagion among COVID-19 concept-related stocks in China

“…Funke and Tsang (2020) employed a dynamic-factor modelling approach to derive a composite indicator of China's monetary policy stance in response to the pandemic, presenting an overview of decisions to shore up commercial bank liquidity. Furceri et al (2021) examined the dynamic impact of recessions on total factor productivity, intensifying deep underlying distortions during recessions. Umar, Kenourgios, and Papathanasiou (2020) analysed the connectedness of global equity indices dependent on ESG performance to find that connectedness exhibits dynamic patterns during three distinct periods: the European sovereign debt crisis, the Greek sovereign debt crisis, and the outbreak of the coronavirus pandemic.…”