Recessions and total factor productivity: Evidence from sectoral data

Davide Furceri; Sinem Kilic Celik; João Tovar Jalles; Ksenia Koloskova

doi:10.1016/j.econmod.2020.09.025

Recessions and total factor productivity: Evidence from sectoral data

Econ Model. 2021 Jan:94:130-138. doi: 10.1016/j.econmod.2020.09.025. Epub 2020 Oct 7.

Authors

Davide Furceri¹, Sinem Kilic Celik², João Tovar Jalles^{3

4

5

6}, Ksenia Koloskova¹

Affiliations

¹ International Monetary Fund, Research Department, 700 19th Street NW, Washington, DC 20431, USA.
² World Bank, Development Economics Prospects Group, 1818 H St NW, Washington, DC 20433, USA.
³ Instituto Superior de Economia e Gestão (ISEG), Universidade de Lisboa, Rua do Quelhas 6, 1200-781, Lisboa, Portugal.
⁴ Research in Economics and Mathematics (REM) and Research Unit on Complexity and Economics (UECE), ISEG, Universidade de Lisboa, Rua Miguel Lupi 20, 1249-078, Lisbon, Portugal.
⁵ Economics for Policy and Centre for Globalization and Governance, Nova School of Business and Economics, Universidade Nova de Lisboa, Rua da Holanda 1, 2775-405, Carcavelos, Portugal.
⁶ IPAG Business School, 184 Boulevard Saint-Germain, 75006, Paris, France.

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.

Keywords: Impulse response functions; Local projection; Productivity; Reallocation effects; Recessions; Sector-level data.