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Aggregate Uncertainty and Sectoral Productivity Growth: The Role of Credit Constraints
Author:
Sangyup Choinull

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,
Davide Furcerinull

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Mr. Yifei Huangnull

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Mr. Prakash Loungani
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 174
Language:
English
Publication Date:
16 Aug 2016
DOI:
https://doi.org/10.5089/9781475526370.001
ISBN:
9781475526370
ISSN:
1018-5941
Pages:
43
Keywords:
WP; external finance; TFP growth; productivity growth; financial dependence; uncertainty; aggregate productivity shock; productivity-enhancing investment; sectoral TFP growth; expected TFP growth; differential effect in TFP growth; sectoral productivity growth; growth rate; productivity-enhancing reallocation; differential effect; TFP growth change; industry TFP growth remains of the sign; industry TFP; Total factor productivity; Productivity; Labor productivity; Stock markets; Output gap; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We show that an increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance. This effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions. Our statistical method—a difference-in-difference approach using productivity growth for 25 industries for 18 advanced economies over the period 1985-2010—mitigates concerns with omitted variable bias and reverse causality. The results are robust to the inclusion of other sources of interaction effects, such as financial development (Rajan and Zingales, 1998) and counter-cyclical fiscal policy (Aghion et al., 2014). The results also hold if economic policy uncertainty (Baker et al., 2015) is used instead of stock market volatility as the measure of aggregate uncertainty.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 174