Recessions and total factor productivity: evidence from sectoral data

Davide Furceri, Sinem Kilic Celik, João Tovar Jalles

Research output: Contribution to journalArticle

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.

Original languageEnglish
Pages (from-to)130-138
Number of pages9
JournalEconomic Modelling
Volume94
DOIs
Publication statusPublished - Jan 2021

Keywords

  • Impulse response functions
  • Local projection
  • Productivity
  • Reallocation effects
  • Recessions
  • Sector-level data

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