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Finance and Productivity Growth
Report

Finance and Productivity Growth

Firm-Level Evidence


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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Scientific

Recommendation

Economists Oliver Levine and Missaka Warusawitharana confirm a link between companies’ use of external financing and their productivity growth, a nexus that sheds new light on economic activity following financial crises. Through their detailed study of a range of businesses in four European countries, Levine and Warusawitharana describe how external financing positively affects enterprises, especially when that financing funds innovation. Their conclusion: After a financial crisis, firms need continued access to credit to grow their businesses, which, in turn, lifts national and global economic growth. The paper’s rigorous scientific analysis is taxing, but getAbstract recommends its results to corporate executives and financial policy makers looking to advance their businesses and economies.

Take-Aways

  • A striking positive relationship exists between companies’ use of external financing – both debt and equity – and productivity growth within those firms.
  • After a financial crisis, when bank credit tends to contract, companies can experience harmful declines in output, thereby exacerbating national economic problems.
  • According to research, firm-level investment in innovative projects magnifies the growth effect on productivity.

About the Authors

Oliver Levine is an assistant professor of finance at the University of Wisconsin. Missaka Warusawitharana is a senior economist at the Board of Governors of the Federal Reserve.