Summary of Finance and Productivity Growth

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Finance and Productivity Growth summary

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.

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.

Summary

Economists have long grappled with the question of how best to spark growth in slowing or stagnant economies. After a financial crisis, when bank credit tends to contract, companies can undergo harmful declines in output, thereby exacerbating national economic problems. In measuring the impact of the financial sector on firm-level and economywide productivity, researchers find that companies that can access credit or equity capital register greater growth in their future output, especially when that financing funds innovation...


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