{
  "title": "Financial Frictions and the Great Productivity Slowdown",
  "publication": "IMF Working Papers, May 31, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/05/31/financial-frictions-and-the-great-productivity-slowdown-44917",
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  "summary": "We study the role of financial frictions in explaining the sharp and persistent productivity growth slowdown in advanced economies after the 2008 global financial crisis.",
  "sections": [
    {
      "heading": "Key findings",
      "content": "- The combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-2008 productivity slowdown in advanced economies.\n- Specific empirical findings:\n  - Firms that entered the crisis with weaker balance sheets experienced decline in total factor productivity growth relative to their less vulnerable counterparts after the crisis.\n  - The decline in productivity growth was larger for firms located in countries where credit conditions tightened more.\n  - Financially fragile firms cut back on intangible capital investment compared to more resilient firms, providing a plausible channel through which financial frictions undermined productivity.\n- All effects are described as highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth."
    },
    {
      "heading": "Data and empirical approach",
      "content": "- Uses a rich cross-country, firm-level data set.\n- Exploits quasi-experimental variation in firm-level exposure to the 2008 global financial crisis to identify effects of financial frictions on productivity."
    },
    {
      "heading": "Mechanisms documented",
      "content": "- Balance sheet vulnerability at firm level (pre-crisis) amplified the hit to total factor productivity growth after the crisis.\n- Tightening credit conditions at the country level interacted with firm-level vulnerability to produce larger declines in productivity.\n- Reduction in intangible capital investment by financially fragile firms is identified as a plausible transmission channel linking financial frictions to lower productivity growth."
    },
    {
      "heading": "Quantitative magnitudes and persistence",
      "content": "- Effects are characterized as:\n  - Highly persistent over time.\n  - Quantitatively large in magnitude.\n  - Possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth."
    },
    {
      "heading": "Robustness and alternative explanations",
      "content": "- The results are not driven by:\n  - More vulnerable firms being less productive before the crisis.\n  - More vulnerable firms having experienced slower productivity growth before the crisis.\n  - Differences between vulnerable and less vulnerable firms along other observed dimensions.\n\nIMF Working Paper \"Financial Frictions and the Great Productivity Slowdown\" by Romain A Duval, Gee Hee Hong, and Yannick Timmer (May 31, 2017).\n\n---\n\n Content in this bundle\n\n- Financial Frictions and the Great Productivity Slowdown, WP/17/129, May 2017\n  - Financial Frictions and the Great Productivity Slowdown, WP/17/129, May 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Financial Frictions and the Great Productivity Slowdown, WP/17/129, May 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/05/31/financial-frictions-and-the-great-productivity-slowdown-44917"
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    "Authors: Romain A Duval, Gee Hee Hong, Yannick Timmer",
    "Published: May 31, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484300701.001",
    "The combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-2008 productivity slowdown in advanced economies.",
    "Specific empirical findings:",
    "All effects are described as highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth.",
    "Uses a rich cross-country, firm-level data set.",
    "Exploits quasi-experimental variation in firm-level exposure to the 2008 global financial crisis to identify effects of financial frictions on productivity.",
    "Balance sheet vulnerability at firm level (pre-crisis) amplified the hit to total factor productivity growth after the crisis.",
    "Tightening credit conditions at the country level interacted with firm-level vulnerability to produce larger declines in productivity.",
    "Reduction in intangible capital investment by financially fragile firms is identified as a plausible transmission channel linking financial frictions to lower productivity growth.",
    "Effects are characterized as:",
    "The results are not driven by:",
    "**Financial Frictions and the Great Productivity Slowdown, WP/17/129, May 2017**"
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