11  (b) Crisis-related scarring  There is plenty of evidence to suggest that financial crises can have a permanent, or certainly persistent, scarring effect on output and productivity in economies. 12  This time’s crisis, the largest in at least a  generation, is unlikely to buck that historical trend. There are several channels through which financial crises might permanently damage corporate sector productivity. First, a collapse in credit availability is likely to constrict the financing of both new and existing companies and hence constrain their investment plans. It may hit particularly hard young companies, without access to alternative sources of finance, for whom productivity growth is often fastest. Empirical evidence from the  8  For example, Feldstein (2016), Baily and Montalbano (2016). Bean (2016) discusses the potential mechanisms for the underestimation of GDP. 10 Syverson (2016), Byrne et al (2016). 11 Syverson (2016). 12 For example, Reinhart and Rogoff (2009), Oulton and Sebastiá-Barriel (2013). 9  4  All speeches are available online at www.bankofengland.co.uk/speeches  4  crisis suggests these channels were potent, in the UK and internationally. 13  As credit conditions have eased  recently, however, this has become a less compelling explanation for persisting productivity problems. A second financial channel through which the crisis may have affected firms’ investment is asset prices. Specifically, many small firms are reliant on property collateral to back their loans. A fall in property prices tightens their collateral constraint and credit conditions.

39  All speeches are available online at www.bankofengland.co.uk/speeches  39  Dabla-Norris, E, S, Guo, V, Haksar, M, Kim, K, Kochhar, K, Wiseman and A, Zdzienicka (2015), ‘The new normal: a sectoral-level perspective on productivity trends in advanced economies’, IMF Staff Discussion Note,SDN/15/03. Disney, R, Jin, W and Miller, H (2013), ‘The productivity puzzles’, IFS Green Budget. Edgerton, J (2012), ‘Credit supply and business investment during the great recession: Evidence from public records of equipment financing’, mimeo, Federal Reserve Board. Feenstra, R, Inklaar, R and Timmer, M (2015), ‘The Next Generation of the Penn World Table’, American Economic Review, Vol 105(10), p.3150-3182, available for download at www.ggdc.net/pwt. Feldstein, M (2016), ‘Remarks at the Brookings Institution conference on productivity’, 8 September, available at https://www.brookings.edu/wp-content/uploads/2016/08/feldstein-remarks.pdf. Foda, K (2016), ‘The productivity slump; a summary of the evidence’, Global Economy and Development at Brookings Brief. Franklin, J, Rostom, R and Thwaites, G (2015), ‘The banks that said no: banking relationships, credit supply and productivity in the United Kingdom’, Bank of England Staff Working Paper No 557. Furman, J and Orszag, P (2015), ‘A Firm-Level Perspective on the Role of Rents in the Rise in Inequality’, Presentation at “A Just Society” Centennial Event in Honor of Joseph Stiglitz. Gopinath, G, Kalemli-Ozcan, S, Karabarbounis, L Villegas-Sanchez, C (2015), ‘Capital Allocation and Productivity in South Europe’, NBER Working Paper No. 21453. Gordon, R (2012), ‘Is the US economic growth over? Faltering innovation confronts the six headwinds’, NBER Working Paper No. 18315, available at http://www.nber.org/papers/w18315.