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6 - Productivity and the Financial Environment
Carlo Altomonte, Università Commerciale Luigi Bocconi, Milan, Filippo di Mauro
Book:

The Economics of Firm Productivity

Published online:

14 April 2022

Print publication:

21 April 2022, pp 77-105
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Summary

Productivity and growth are affected by the financial environment as a whole. This environment is a combination of firms' financial conditions (the demand side), and a country's quality of financing institutions (the supply side). A malfunctioning financial environment reduces the chance that growing companies can access the external financial resources they need to undertake productive investment. Stagnating productivity growth follows, creating low aggregate economic growth. Firms in countries that underwent serious financial distress due to the financial crisis have persistently suffered from its consequences. The situation led to a piling up of debts, a contraction of investments and a strong decrease in firms' profitability. This process also led (and is partially due) to an increase in the number of low-productivity zombie firms in periphery countries after the financial crisis.