1st Finance and Productivity Conference (FINPRO)
A conference jointly organised by the Competitiveness Research Network (CompNet), the European Bank for Reconstruction and Development (EBRD) and the Halle Institute for Economic Research (IWH)
The 1st Finance and Productivity Conference (FIN-PRO) took place on 2 and 3 December 2019 in London. It was jointly organised by CompNet, the European Bank for Reconstruction and Development (EBRD) and the IWH. At first, the focus lay on the connection between entrepreneurship and innovation. The topics encompassed the negative effects of adverse financial shocks on start-ups and the early career choices of elite engineers. Şebnem Kalemli-Özcan gave the first keynote speech, presenting her research agenda on the role of corporate leverage in propagating aggregate boom-bust cycles. For Europe, she finds that corporate debt overhang is important in order to understand the low investment activity. Furthermore, three interesting presentations showed the link between financial frictions and productivity. Among others, Simone Lenzu presented a paper investigating the effect of negative credit supply shocks on firms’ productivity growth. The results suggest that, in the short-run, productivity (purged from price effects) does not move in response to financial shocks, while over a longer time, horizon credit supply shocks have a negative impact on productivity growth, which is driven by a persistent contraction of firms’ investments in innovation and technology adoption. Klaas Mulier presented a novel approach for identifying financial constraints from production data, using evidence from ECB’s SAFE survey, which informs about self-reported financial constraints.
The second day started with an engaging discussion on the micro foundations of aggregate productivity. Kalina Manovaon then presented her paper on trade, productivity and misallocation. She highlighted how misallocation of resources acts as a factor that can amplify, dampen or even reverse the gain occurring from trade. Therefore, optimal design of trade policy and structural reforms should take the role of misallocation into account. Looking at policy and crisis transmission, Vahid Saadi presented his research in which he and his coauthors tested the cleansing effects of banking crises in the U.S. The results showed a clear trade-off: Greater levels of bank restructuring are associated with higher destruction in the real sector; however, bank restructuring helps by having a much faster postcrisis recovery in terms of job creation, firm entry and TFP growth. In a wrap-up, the organisers stressed the potential of further merging the productivity and finance literature, as well as the need to further work on new methodological frameworks either to improve or to challenge older ones. With respect to both these two issues, CompNet is already working to provide an improved dataset including fundamental variables as entry/exit of firms, firm age and zombie firms. Find more information on CompNets work here.
Authors: Tommaso Bighelli, Sergio Inferrera, Marco Christophori