On The Virtue of Bad Times: An Analysis of the Interaction Between Economic Fluctuations and Productivity Growth
AbstractThis 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 InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 91-23.
Length: 46 pages
Date of creation: 1991
Date of revision:
Publication status: Published in Macroeconomic Dynamics, 1998, 2 (3), pp. 322-344
economic growth ; economic models ; technology ; productivity;
Other versions of this item:
- Aghion, Philippe & Saint-Paul, Gilles, 1991. "On the Virtue of Bad Times: An Analysis of the Interaction between Economic Fluctuations and Productivity Growth," CEPR Discussion Papers 578, C.E.P.R. Discussion Papers.
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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