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Interpreting the Procyclical Productivity of Manufacturing Sectors: Can We Really Rule Out External Effects:

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Author Info
Miguel Jimenez (OECD)
Domenico J. Marchetti (Banca d'Italia)
Abstract

Explaining procyclical productivity is crucial for any theory of the business cycle. Recent contributions have focused on the dynamic implications of persistent aggregate fluctuations on sectoral productivity. Given a permanent innovation in aggregate output, variations of labor (or capital) utilization may have only a transitory effect on measured productivity, whereas external effects should produce permanent effects. We find that persistent aggregate fluctuations have a permanent effect on sectoral productivity of four-digit U.S. manufacturing industries. We discuss a number of alternative explanations of this evidence. Whereas our findings are unlikely to be due to market power and increasing returns, they are consistent with simple models with external effects or temporal agglomeration.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1319.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1319

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