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On The Virtue of Bad Times: An Analysis of the Interaction Between Economic Fluctuations and Productivity Growth

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  • Aghion, P.
  • Saint-Paul, G.

Abstract

This paper develops a simple model, which shows how economic fluctuations can stimulate growth. It is shown that firms tend to invest more in productivity growth during recessions, since the opportunity cost (in terms of forgone profits) of investing capital or labour resources in technological (or managerial) improvements is lower during recessions. It is then established that the average growth rate of the economy increases with the amplitude of the fluctuations and also with their frequency, provided that the initial average duration of recession phases is sufficiently low compared with that of the expansion phases. Finally, the main results of the paper are shown to be consistent with the empirical evidence recently produced by Davis-Haltiwanger (1990) or Blanchard-Diamond (1990) concerning the cyclical behaviour of job re-allocation.
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Suggested Citation

  • Aghion, P. & Saint-Paul, G., 1991. "On The Virtue of Bad Times: An Analysis of the Interaction Between Economic Fluctuations and Productivity Growth," DELTA Working Papers 91-23, DELTA (Ecole normale supérieure).
    • Handle: RePEc:del:abcdef:91-23
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    Keywords

    economic growth ; economic models ; technology ; productivity;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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