Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic

74 Pages Posted: 28 Sep 2021

See all articles by Guido Ascari

Guido Ascari

University of Pavia; De Nederlandsche Bank

Andrea Colciago

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); De Nederlandsche Bank - Research Department

Riccardo Silvestrini

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

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Date Written: September 24, 2021

Abstract

Asymmetric effects across sectors are the distinctive features of the Covid-19 shock. Business Formation Statistics in the United States show a reallocation of entry and exit opportunities across sectors in the initial phase of the pandemic. To explain these facts, we propose an Epidemiological- Industry Dynamic model with heterogeneous firms and endogenous firms dynamics. Our analysis suggests that the cleansing effect on business dynamism of the Covid-19 crisis, which typically characterizes recessions, is sector-specific. The framework can rationalize the dynamics of aggregate productivity during the crisis. Monetary policy and sticky wages are central ingredients to capture reallocation effects. Social distancing, by smoothing out cleansing in the social sector, slows down the reallocation process and prolongs the recession, but saves lives.

Keywords: Covid-19; Productivity; Entry; Reallocation

JEL Classification: E3, L16, I3

Suggested Citation

Ascari, Guido and Ascari, Guido and Colciago, Andrea and Silvestrini, Riccardo, Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic (September 24, 2021). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 482, Available at SSRN: https://ssrn.com/abstract=3930245

Guido Ascari

University of Pavia

De Nederlandsche Bank ( email )

Netherlands

Andrea Colciago (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Riccardo Silvestrini

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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