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The effect of the financial crisis on TFP growth: a general equilibrium approach

Author

Listed:
  • Stephen Millard

    (Bank of England)

  • Anamaria Nicolae

    (Durham University Business School)

Abstract

In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate. Since firms have to borrow to finance their research and development (R&D) spending, such a rise in the spread leads to a fall in R&D spending, which affects innovation and, hence, reduces TFP growth. In turn, this leads to permanent falls in the levels of output and labour productivity.

Suggested Citation

  • Stephen Millard & Anamaria Nicolae, 2014. "The effect of the financial crisis on TFP growth: a general equilibrium approach," Bank of England working papers 502, Bank of England.
    • Handle: RePEc:boe:boeewp:0502
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    References listed on IDEAS

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    Cited by:

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    2. Tanna, Sailesh & Luo, Yun & De Vita, Glauco, 2017. "What is the net effect of financial liberalization on bank productivity? A decomposition analysis of bank total factor productivity growth," Journal of Financial Stability, Elsevier, vol. 30(C), pages 67-78.
    3. Kapetanios, George & Price, Simon & Young, Garry, 2018. "A UK financial conditions index using targeted data reduction: Forecasting and structural identification," Econometrics and Statistics, Elsevier, vol. 7(C), pages 1-17.
    4. Stephen Millard & Anamaria Nicolae & Michael Nower, 2019. "International trade, non-trading firms and their impact on labour productivity," Bank of England working papers 787, Bank of England.
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    6. Osuagwu, Eze Simpson & Isola, Wakeel & Nwaogwugwu, Isaac, 2018. "Measuring Technical Efficiency and Productivity Change in the Nigerian Banking Sector: A Comparison of non-parametric DEA and parametric SFA," MPRA Paper 112948, University Library of Munich, Germany.

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    More about this item

    Keywords

    Endogenous growth; Research and development; Innovation;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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