The heterogeneous effects of crises on productivity. Regional evidence from the Great Recession

While most economists argue that demand-driven cyclical fluctuations do not affect long-run total factor productivity (TFP), Kaldorian and Schumpeterian approaches hold different and contrasting views. We analyse this issue computing a Malmquist TFP index for 267 NUTS2 European regions throughout 1995–2016. In particular, one of our main findings is that the Great Recession improved technical efficiency “catch-up” but reduced technical progress, leading to lower long-run TFP growth. In New Member States, catch-up effects were minimal, and the Great recession sharply reduced TFP growth. There is also a group of low growth regions whose TFP growth is relatively insensitive to downturns.