An Inquiry into Manufacturing Capacity in Italy after the Double-Dip Recession

Abstract

This paper investigate the effects of the prolonged double-dip recession on the productive capacity of the Italian manufacturing sector, employing three methods: a production function approach, a survey-based methodology and a statistical filtering of the industrial production series. We estimate that between 2007 and 2013 capacity contracted by 11–17%, depending on the method. We also conduct an exercise to quantify the loss with respect to a counterfactual evolution of capacity in a ‘no-crisis’ scenario in which pre-2008 trends are extrapolated: in this case the loss is close to 20% for all methods. Finally, we identify the main sectors of activity responsible for the reduction in capacity in the baseline and counterfactual scenarios, and find that they don’t always coincide, reflecting uneven dynamics across sectors before and during the recession.

Keywords: productive capacity, manufacturing

JEL Classification: E32, L16, L60