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The importance of reallocation for productivity growth: Evidence from European and US banking

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  • Bos, J.W.B.

    (Finance)

  • van Santen, P.C.
  • Schilp, P.

Abstract

This paper quantifies the effect of reallocation dynamics on aggregate productivity developments in the banking sectors of Europe and the United States. We document an increase in productivity over the period 1995-2009, on the order of 11% in the US and 19% in Europe. At an annual frequency, under-performing banks capture market share, while more productive banks lose market share, in particular in the US. The pattern of reallocation is markedly different between the geographical regions: European productivity has grown by reallocating inputs through the first half of the sample, at the same time when reallocation diminished growth in the US. Within-firm growth has been rising steadily in both areas, largely due to technical change. The long- run positive effects of creative destruction are especially apparent in the US, where reallocation is an important driver of increases in aggregate productivity.

Suggested Citation

  • Bos, J.W.B. & van Santen, P.C. & Schilp, P., 2013. "The importance of reallocation for productivity growth: Evidence from European and US banking," Research Memorandum 056, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2013056
    DOI: 10.26481/umagsb.2013056
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    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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