Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints

IMF Working Papers, August 16, 2016

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Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints

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Bibliographic details

• Authors: Sangyup Choi, Davide Furceri, Yifei Huang, Prakash Loungani
• Published: August 16, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475526370.001

Key findings

• An increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance.
• This differential effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions.
• The results also hold if economic policy uncertainty (Baker et al., 2015) is used instead of stock market volatility as the measure of aggregate uncertainty.

Methodology

• Statistical approach: difference-in-difference using productivity growth for 25 industries for 18 advanced economies over the period 1985-2010.
• Purpose of design: mitigates concerns with omitted variable bias and reverse causality.

Robustness checks and interactions

• Results are robust to the inclusion of other sources of interaction effects, such as financial development (Rajan and Zingales, 1998) and counter-cyclical fiscal policy (Aghion et al., 2014).
• Alternative uncertainty measure: economic policy uncertainty (Baker et al., 2015) produces consistent findings with stock market volatility.

Subject areas and keywords (as listed)

• Subjects: Financial markets, Labor productivity, Output gap, Production, Productivity, Stock markets, Total factor productivity
• Keywords: aggregate productivity shock, differential effect, differential effect in TFP growth, expected TFP growth, external finance, financial dependence, Global, growth rate, industry TFP, industry TFP growth remains of the sign, Labor productivity, Output gap, Productivity, productivity growth, productivity-enhancing investment, productivity-enhancing reallocation, sectoral productivity growth, sectoral TFP growth, Stock markets, TFP growth, TFP growth change, Total factor productivity, uncertainty, WP

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