Effects of Financial Crises on Productivity, Capital and Employment

23 Pages Posted: 6 Jun 2020

See all articles by Nicholas Oulton

Nicholas Oulton

London School of Economics - Centre for Macroeconomics(CFM)

María Sebastiá‐Barriel

Bank of England

Date Written: February 2017

Abstract

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.

Keywords: banking crisis, financial, potential output, productivity, recession

JEL Classification: E23, E32, J24

Suggested Citation

Oulton, Nicholas and Sebastiá‐Barriel, María, Effects of Financial Crises on Productivity, Capital and Employment (February 2017). Review of Income and Wealth, Vol. 63, pp. S90-S112, 2017, Available at SSRN: https://ssrn.com/abstract=3619318 or http://dx.doi.org/10.1111/roiw.12253

Nicholas Oulton (Contact Author)

London School of Economics - Centre for Macroeconomics(CFM) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://https://ideas.repec.org/e/pou3.html

María Sebastiá‐Barriel

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

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