The financial crisis, bank lending and UK productivity: sectoral and firm-level evidence

This paper assesses the evidence and investigates some of the mechanisms by which the most recent banking sector crisis might have affected the supply side of the UK economy. We find clear evidence that the banking sector crisis affected credit supply to businesses and caused bank lending to decline. But we do not find much evidence of the heterogeneity in performance between different industrial sectors that would have been expected if banking sector impairment had been the key factor holding back productivity growth. Consistent with this we do not find strong evidence that a lack of reallocation of resources across businesses has been a substantial drag on productivity growth. Keywords: credit; productivity; recession JEL Classifications: B22; D24; E34; G2I
I. Introduction There is a range of cross-country evidence suggesting that long-term growth potential is damaged by major recessions associated with financial crises (Reinhart and Rogoff, 2011). Oulton and Sebastia-Barriel [...]