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Effects of Financial Crises on Productivity, Capital and Employment
Author(s) -
Oulton Nicholas,
SebastiáBarriel María
Publication year - 2017
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12253
Subject(s) - economics , total factor productivity , productivity , financial crisis , per capita , capital (architecture) , short run , monetary economics , labour economics , macroeconomics , history , population , demography , archaeology , sociology
We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short‐run effect on the growth rate of labor productivity and a long‐run effect on its level is estimated on 61 countries over 1954–2010. A banking crisis as defined by Reinhart and Rogoff reduces the long‐run level of GDP per worker, and also that of capital per worker, by on average 1.1 percent, for each year that the crisis lasts; it also reduces the TFP level by 0.8%. The long run, negative effect on the level of GDP per capita, 1.8 percent, is substantially larger. So there is also a hit to employment. The effects on labor productivity, capital and TFP are larger in developing than in developed countries; the opposite is the case for employment.