Long and Short-Term Effects of the Financial Crisis on Labour Productivity, Capital and Output
AbstractThe behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1185.
Date of creation: Jan 2013
Date of revision:
Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
productivity; financial; banking crisis; recession;
Other versions of this item:
- Nicholas Oulton & María Sebastiá-Barriel, 2013. "Long and short-term effects of the financial crisis on labour productivity, capital and output," LSE Research Online Documents on Economics 48926, London School of Economics and Political Science, LSE Library.
- Oulton, Nicholas & Sebastia-Barriel, Maria, 2013. "Long and short-term effects of the financial crisis on labour productivity, capital and output," Bank of England working papers 470, Bank of England.
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dan Ben-David & Robin L. Lumsdaine & David H. Papell, 1998.
"Unit Roots, Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks,"
NBER Working Papers
6397, National Bureau of Economic Research, Inc.
- Dan Ben-David & Robin L. Lumsdaine & David H. Papell, 2003. "Unit roots, postwar slowdowns and long-run growth: Evidence from two structural breaks," Empirical Economics, Springer, vol. 28(2), pages 303-319, 04.
- Ben-David, D. & Lumsdaine, L.R. & Papell, D.H., 1996. "Unit Roots Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks," Papers 33-96, Tel Aviv.
- Barnes, Sebastian & Price, Simon & Sebastia Barriel, Maria, 2008. "The elasticity of substitution: evidence from a UK firm-level data set," Bank of England working papers 348, Bank of England.
- Valerie Cerra & Sweta C. Saxena, 2005.
"Growth Dynamics: The Myth of Economic Recovery,"
- Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
- Òscar Jordà & Moritz HP. Schularick & Alan M. Taylor, 2011.
"When Credit Bites Back: Leverage, Business Cycles, and Crises,"
NBER Working Papers
17621, National Bureau of Economic Research, Inc.
- Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," CEPR Discussion Papers 8678, C.E.P.R. Discussion Papers.
- Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2011. "When credit bites back: leverage, business cycles, and crises," Working Paper Series 2011-27, Federal Reserve Bank of San Francisco.
- Oscar Jorda & Moritz Schularick & Alan Taylor, 2012. "When Credit Bites Back: Leverage, Business Cycles and Crises," Working Papers 1224, University of California, Davis, Department of Economics.
- Goodridge, Peter & Haskel, Jonathan & Wallis, Gavin, 2012.
"UK Innovation Index: Productivity and Growth in UK Industries,"
CEPR Discussion Papers
9063, C.E.P.R. Discussion Papers.
- Haskel, J & Goodridge, P & Wallis, G, 2012. "UK Innovation Index: productivity and growth in UK industries," Working Papers 9786, Imperial College, London, Imperial College Business School.
- Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2009.
"What Happened To The Knowledge Economy? Ict, Intangible Investment, And Britain'S Productivity Record Revisited,"
Review of Income and Wealth,
International Association for Research in Income and Wealth, vol. 55(3), pages 686-716, 09.
- Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2007. "What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain's Productivity Record Revisited," Working Papers 603, Queen Mary, University of London, School of Economics and Finance.
- M. Hashem Pesaran, 2006.
"Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure,"
Econometric Society, vol. 74(4), pages 967-1012, 07.
- M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"Growth in a Time of Debt,"
NBER Working Papers
15639, National Bureau of Economic Research, Inc.
- Perron, Pierre, 1989.
"The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,"
Econometric Society, vol. 57(6), pages 1361-1401, November.
- Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
- Broadberry, S. N. & Crafts, N. F. R., 1992.
"Britain's Productivity Gap in the 1930s: Some Neglected Factors,"
The Journal of Economic History,
Cambridge University Press, vol. 52(03), pages 531-558, September.
- Broadberry, S.N. & Crafts, N.R.F., 1990. "Britain'S Productivity Gap In The 1930s : Some Neglected Factors," The Warwick Economics Research Paper Series (TWERPS) 364, University of Warwick, Department of Economics.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2011.
"From Financial Crash to Debt Crisis,"
American Economic Review,
American Economic Association, vol. 101(5), pages 1676-1706, August.
- Davide Furceri & Annabelle Mourougane, 2009.
"The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries,"
OECD Economics Department Working Papers
699, OECD Publishing.
- Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
- Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
- Faccini, Renato & Hackworth, Christopher, 2010. "Changes in output, employment and wages during recessions in the United Kingdom," Bank of England Quarterly Bulletin, Bank of England, vol. 50(1), pages 43-50.
- Corder, Matthew & Weale, Martin, 2011. "Banking crises and recessions: what can leading indicators tell us?," Discussion Papers 33, Monetary Policy Committee Unit, Bank of England.
- Hughes, Abigail & Saleheen, Jumana, 2012. "UK labour productivity since the onset of the crisis — an international and historical perspective," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 138-146.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
- Mehdi Hosseinkouchack & Maik Wolters, 2012.
"Do large recessions reduce output permanently?,"
Kiel Working Papers
1815, Kiel Institute for the World Economy.
- Hosseinkouchack, Mehdi & Wolters, Maik H., 2012. "Do large recessions reduce output permanently?," Economics Working Papers 2012-16, Christian-Albrechts-University of Kiel, Department of Economics.
- Wolters, Maik & Hosseinkouchack, Mehdi, 2013. "Do large recessions reduce output permanently?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79881, Verein für Socialpolitik / German Economic Association.
- Roland Döhrn & Philipp an de Meulen & Daniela Grozea-Helmenstein & Tobias Kitlinski & Torsten Schmidt & Simeon Vosen, 2013. "Die wirtschaftliche Entwicklung im Ausland: Zögerliche Erholung der Weltwirtschaft," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 36, 03.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.