Efficiency and production frontiers in the aftermath of recessions: international evidence

The relationship between recessions and productivity growth has been the focus of an important body of theoretical and empirical research in the last two decades. We contribute to this literature by presenting new evidence on the evolution of productivity in the aftermath of recessions. Our method allows us to distinguish between frontier and (in-)efficiency effects of recessions. We present international evidence for a panel of 70 countries for the 1960-2000 period. Our results reveal that the average cumulative impact of recessions on productivity up to four years after its end is negative and significant. This, however, results from a mixture of mechanisms. The level of frontier production increases, but the rate of technical progress decreases, leading to a fall in frontier production. Efficiency also falls, lending support for the idea that recessions tend to reduce, rather than increase, economic restructuring. Long and deep recessions are also shown to have distinctive impacts on productivity.