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Credit booms, labor reallocation, and productivity growth

Author

Listed:
  • Enisse Kharroubi

    (Bank for International Settlements)

  • Christian Upper

    (Bank for International Settlements)

  • Fabrizio Zampolli

    (Bank for International Settlements)

  • Claudio Borio

    (Bank for International Settlements)

Abstract

We investigate how credit expansion affects labor reallocation and labor productivity growth in a sample of over 20 advanced economies between 1979 and 2009. Using industry-level data, we decompose aggregate labor productivity growth for each country into a common and an allocation component. We then run country fixed-effects panel regressions to examine how credit expansion influences each of these components. Next, we run industry-level regressions to examine how the sensitivity of employment growth to labor productivity growth varies with the intensity of credit expansion. Both analyses lead to the conclusion that credit growth tends to reduce aggregate labor productivity growth. The evidence also suggests that during credit booms this reduction occurs through labor reallocations toward lower productivity growth sectors.

Suggested Citation

  • Enisse Kharroubi & Christian Upper & Fabrizio Zampolli & Claudio Borio, 2023. "Credit booms, labor reallocation, and productivity growth," International Journal of Central Banking, International Journal of Central Banking, vol. 19(4), pages 234-286, December.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:5:a:6
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    References listed on IDEAS

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    3. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
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    Cited by:

    1. Ryan Niladri Banerjee & Aaron Mehrotra & Fabrizio Zampolli, 2024. "Keeping the momentum: how finance can continue to support growth in EMEs," BIS Papers chapters, in: Bank for International Settlements (ed.), Keeping the momentum: how finance can continue to support growth in EMEs, volume 127, pages 1-39, Bank for International Settlements.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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