Financial Shocks and TFP Growth

 
Author/Editor: Severo, Tiago ; Estevão, Marcello
 
Publication Date: January 01, 2010
 
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Summary: The paper investigates how changes in industries' funding costs affect total factor productivity (TFP) growth. Based on panel regressions using 31 U.S. and Canadian industries between 1991 and 2007, and using industries' dependence on external funding as an identification mechanism, we show that increases in the cost of funds have a statistically significant and economically meaningful negative impact on TFP growth. This finding cannot be explained by either increasing returns to scale or factor hoarding, as results are not sensitive to controlling for industry size and our calculations account for changes in factor utilization. Based on a stylized theoretical model, the estimates suggest that financial shocks distort the allocation of factors across firms even within an industry, reducing its TFP. The decline in productivity growth accounts for a large fraction of the negative impact of funding costs on output.
 
Series: Working Paper No. 10/23
Subject(s): Bonds | Corporate sector | External financing | External shocks | Industrial sector | Production growth

Author's Keyword(s): Business cycles | total factor productivity | financial shocks
 
English
Publication Date: January 01, 2010
ISBN/ISSN: 9781451962376 Format: Paper
Stock No: WPIEA2010023 Pages: 26
Price:
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