Financial Shocks and TFP Growth

36 Pages Posted: 8 Apr 2011

See all articles by Marcello M. Estevão

Marcello M. Estevão

International Monetary Fund (IMF) - Western Hemisphere Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2010


We investigate how changes in industries’ funding costs affect total factor productivity (TFP) growth. Panel regressions with 31 U.S. and Canadian industries between 1991 and 2007, using industries’ dependence on external funding as an identification mechanism, show that higher funding costs reduce TFP growth. This finding is robust to controlling for industry size and changes in factor utilization. Based on a theoretical model, the estimates suggest that financial shocks distort the allocation of factors across firms within an industry, reducing its TFP. Lower productivity growth accounts for a large fraction of the negative impact of funding costs on output.

Keywords: Business cycles, total factor productivity, financial shocks

JEL Classification: E23, E32, E44

Suggested Citation

Estevao, Marcello M., Financial Shocks and TFP Growth (January 1, 2010). IMF Working Paper No. 10/23, Available at SSRN: or

Marcello M. Estevao (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

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