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Rothenberg study on financial crisis and productivity evolution published in The World Economy

Apr 30, 2014

Financial Crisis and Productivity Evolution: Evidence from Indonesia

Sharon Poczter, Paul Gertler & Alexander D. Rothenberg

The World Economy, April 2014

Alexander Rothenberg

Alexander Rothenberg


The authors examine how the productivity of different industries changes over the course of a financial crisis by exploiting cross-firm, within-industry differences in productivity resulting from the Asian financial crisis of 1997. They show that the crisis coincided with dramatic changes in productivity and that many of these changes were sustained in the long run. In particular, an increasing number of industries experienced decreases in average firm productivity during the crisis and did not recover.

Further, they find that changes in industrial productivity in the recovery period are driven not by increases in the productivity of existing firms, but rather by the entry of new firms and changes to the reallocation of market share. Finally, the authors find that foreign exporters' productivity was the least impacted by the crisis, suggesting that only access to alternate forms of both capital and international markets can help to smooth investment and maintain productivity over a financial crisis.