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Every cloud has a silver lining: micro-level evidence on the cleansing effects of the portuguese financial crisis

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Abstract

Using firm level data, we show that the Portuguese financial crisis had, overall, a cleansing effect on productivity. During the crisis, aggregate productivity gains, both in manufacturing and services, came from relatively higher contributions of entry and exit of firms and from reallocation of resources between surviving firms. At the microlevel, we find that the crisis reduced the probability of survival for high and low productivity firms, but hit low productivity firms disproportionately harder, in line with the cleansing hypothesis. The correlation between productivity and employment growth in manufacturing and services strengthened, but the correlation between productivity and capital growth in the service sector weakened. We attribute this result in part to structural sectoral differences, but mainly to the large negative demand and credit shocks that affected mainly the nontradable services sub-sector. We also find that the probability of exit increased disproportionately for firms operating in more financially dependent industries, but there is no evidence of a scarring effect on productivity stemming from changing credit conditions.

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  • Daniel A. Dias, 2018. "Every cloud has a silver lining: micro-level evidence on the cleansing effects of the portuguese financial crisis," Working Papers w201818, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w201818
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    Cited by:

    1. Ettore Panetti, 2019. "The Economics of The European Deposit Insurance Scheme," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    2. Diana Bonfim & Luísa Farinha & Sónia Félix, 2019. "Credit and the economy: lessons from a decade of research at Banco de Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    3. Kuokštis, Vytautas & Asali, Muhammad & Spurga, Simonas Algirdas, 2022. "Labor market flexibility and exchange rate regimes," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. Ettore Panetti & Edoardo M. Acabbi, 2019. "The Financial Channels of Labor Rigidities: Evidence from Portugal," Working Papers w201915, Banco de Portugal, Economics and Research Department.

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