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The Persistent Effect of a Credit Crunch on Output and Productivity: Technical or Allocative Efficiency?

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  • Patricio Toro

Abstract

This paper estimates the impact of a credit crunch on output and productivity growth by disentangling two complementary channels: technical and allocative efficiency. Starting from the census of Chilean firms and exploiting a large-scale natural experiment during the 2008-09 crisis, I show that a sharp contraction in credit supply had persistent real effects, as the output of more affected firms did not catch up with that of less affected firms. A negative but moderate effect on firm-level productivity helps to explain this persistence. Also, the dispersion of the marginal productivity of capital increases within more affected firms. In the aggregate, productivity growth explains around a third of the impact of the credit crunch on output growth in the medium run. In turn, allocative efficiency explains twice as much as technical efficiency of productivity growth.

Suggested Citation

  • Patricio Toro, 2019. "The Persistent Effect of a Credit Crunch on Output and Productivity: Technical or Allocative Efficiency?," Working Papers Central Bank of Chile 837, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:837
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