Finance and Productivity Growth: Firm-Level Evidence

46 Pages Posted: 17 Mar 2012 Last revised: 19 Nov 2019

See all articles by Oliver Levine

Oliver Levine

University of Wisconsin - Madison - Department of Finance

Missaka Warusawitharana

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: November 15, 2019

Abstract

The effect of financing frictions on firm productivity growth is not well understood. Using a model we show that a rise in financial frictions leads to increased sensitivity of productivity growth to the use of external finance. We test this prediction using a large dataset of mostly private European firms and find strong evidence supporting the prediction. Our findings demonstrate an important link between financial markets and the real economy, and help to explain why economic activity remains persistently depressed following financial crises.

Keywords: Financial crises, financial frictions, innovation, total factor productivity (TFP)

JEL Classification: D24, G30, O16

Suggested Citation

Levine, Oliver and Warusawitharana, Missaka, Finance and Productivity Growth: Firm-Level Evidence (November 15, 2019). Journal of Monetary Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2023668 or http://dx.doi.org/10.2139/ssrn.2023668

Oliver Levine

University of Wisconsin - Madison - Department of Finance ( email )

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Madison, WI 53706
United States

HOME PAGE: http://oliverlevine.com

Missaka Warusawitharana (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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