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On the Virtue of Bad Times: An Analysis of the Interaction between Economic Fluctuations and Productivity Growth

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  • Aghion, Philippe
  • Saint-Paul, Gilles

Abstract

This paper develops a simple model, which shows how economic fluctuations can stimulate growth. It is shown that firms tend to invest more in productivity growth during recessions, since the opportunity cost (in terms of forgone profits) of investing capital or labour resources in technological (or managerial) improvements is lower during recessions. It is then established that the average growth rate of the economy increases with the amplitude of the fluctuations and also with their frequency, provided that the initial average duration of recession phases is sufficiently low compared with that of the expansion phases. Finally, the main results of the paper are shown to be consistent with the empirical evidence recently produced by Davis-Haltiwanger (1990) or Blanchard-Diamond (1990) concerning the cyclical behaviour of job re-allocation.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 578.

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Date of creation: Sep 1991
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Handle: RePEc:cpr:ceprdp:578

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Keywords: Expansions; Job Creation; Job Destruction; Productivity Growth; Productivity Shocks; Recessions;

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Cited by:
  1. Erica Fellinger Jusué & Tomás Mancha Navarro, 2008. "Stabilization policies in Argentina: an analysis from the perspective of inflation uncertainty," Working Papers 04/08, Instituto Universitario de Análisis Económico y Social.
  2. Gadi Barlevy, 1999. "Credit Market Frictions and the Reallocation Process," Discussion Papers 1251, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Sweta Chaman Saxena & Valerie Cerra, 2005. "Growth Dynamics," IMF Working Papers 05/147, International Monetary Fund.
  4. Dimitris Christopoulos & Miguel León-Ledesma, 2009. "Efficiency and frontier technology in the aftermath of recessions: international evidence," Studies in Economics 0922, Department of Economics, University of Kent.
  5. Li, Chol-Won, 2000. "Growth and Output Fluctuations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(2), pages 95-113, May.
  6. Dimitrios Varvarigos & Keith Blackburn, 2005. "Growth, Uncertainty and Finance," Money Macro and Finance (MMF) Research Group Conference 2005 12, Money Macro and Finance Research Group.
  7. Keith Blackburn & Dimitrios Varvarigos, 2008. "Human capital accumulation and output growth in a stochastic environment," Economic Theory, Springer, vol. 36(3), pages 435-452, September.
  8. Patricia Crifo-Tillet & Etienne Lehmann, 2004. "Why Will Technical Change Not Be Permanently Skill-Biased?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 157-180, January.
  9. Maurice Obstfeld, 1992. "Risk-taking, global diversification, and growth," Discussion Paper / Institute for Empirical Macroeconomics 61, Federal Reserve Bank of Minneapolis.
  10. Carmeci, Gaetano & Mauro, Luciano, 2003. "Imperfect labor market and convergence: theory and evidence for some OECD countries," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 837-856, November.
  11. Keiko Ito & Sébastien Lechevalier, 2009. "The evolution of the productivity dispersion of firms: a reevaluation of its determinants in the case of Japan," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(3), pages 405-429, October.
  12. V A Muscatelli., 1995. "Flexibility, Structural Change and the Global Economy," Working Papers 9601, Business School - Economics, University of Glasgow, revised Jan 1996.
  13. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-57, March.
  14. Imbs, Jean, 2002. "Why the Link Between Volatility and Growth is Both Positive and Negative," CEPR Discussion Papers 3561, C.E.P.R. Discussion Papers.
  15. Patricia CRIFO-TILLET & Etienne LEHMANN, 2001. "Why the Kuznets Curve will always Reverse ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001036, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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