Productivity Growth, Capital Reallocation and the Financial Crisis: Evidence from Europe and the US

43 Pages Posted: 7 Oct 2019

See all articles by Carol A. Corrado

Carol A. Corrado

The Conference Board; Georgetown University - Center for Business and Public Policy

Jonathan Haskel

Imperial College Business School

Cecilia Jona Lasinio

Italian Statistical Institute

Date Written: August 2019

Abstract

How has capital reallocation affected productivity growth since the financial crisis? For example, have low interest rates disrupted the reallocation process? This paper calculates the effect on productivity growth of capital reallocation between industries. It uses an accounting framework, due to Jorgenson and his co-authors, that computes the contribution of capital services to productivity growth relative to one where rates of return are equalised between sectors: if capital persists in the low return sectors, the reallocation measure falls. Using data from 11 countries (the major EU economies plus the US), in 1997-2013, we find: (a) the contribution of capital reallocation to productivity growth is lower in most economies after than before the financial crisis, notably in Mediterranean countries; (b) more capital real-location is correlated with lower real interest rates, contrary to the hypothesis that low real interest rates have hurt capital reallocation; (c) controlling for shocks, lower capital reallocation is associated with lower optimism, and weaker financial systems.

Keywords: capital reallocation, Intangible Capital, Productivity Growth

JEL Classification: E01, E22, O47

Suggested Citation

Corrado, Carol A. and Haskel, Jonathan and Jona Lasinio, Cecilia, Productivity Growth, Capital Reallocation and the Financial Crisis: Evidence from Europe and the US (August 2019). Available at SSRN: https://ssrn.com/abstract=3464499

Carol A. Corrado (Contact Author)

The Conference Board ( email )

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Georgetown University - Center for Business and Public Policy ( email )

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Jonathan Haskel

Imperial College Business School ( email )

South Kensington Campus
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United Kingdom

Cecilia Jona Lasinio

Italian Statistical Institute ( email )

Via Cesare Balbo , 16
Rome
Italy

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