Heterogeneous Fall in Manufacturing Productive Capacity During the 2008-2013 Italian Double-Dip Recession

Between 2008 and 2013 the Italian economy was affected by two deep recessions which significantly reduced the productive capacity in the manufacturing sector. This paper analyses the micro-data from the Bank of Italy Survey of Industrial and Service Firms in order to investigate the main drivers of this fall in capacity. Our main findings are that: i) productive capacity losses were extremely heterogeneous across sectors of activity and differences in pre-crisis trends persisted in a number of them; ii) large firms were more successful in limiting capacity losses, especially in the first phase of the crisis; iii) the foreign markets exposure was negatively correlated with performance during the first recession, but the correlation turned positive in 2012-2013; iv) among the Italian macro-regions, the Centre weathered the long recession relatively better, especially in 2008-2009; v) during the sovereign debt crisis subsidiaries underperformed firms not belonging to any group, while the performance of parent companies was broadly in line with the average; and vi) the negative effects of credit constraints on productive capacity, which discouraged investments, were significant for a wide range of firms only during the second recession.