SERVICEGAP Discussion Paper 4

The Impact of Financial Stress on Sectoral Productivity: A panel cointegration analysis

Georgios Efthyvoulou

University of Birmingham



Previous literature on the impact of financial crises on labour productivity was concerned with developments at the aggregate economy level. This paper examines this issue at the sectoral level by employing panel cointegration techniques in a panel data set consisting of 12 OECD countries over a 27-year period (1981-2007) and using the financial stress index developed by the International Monetary Fund (Cardarelli et al., 2010). The results suggest that there are significant differences between the broad sectors of production and market services. While both sectors are affected by financial crises, the channels through which this happens differ: in the production sector labour productivity is mainly affected through global developments whereas in market services the effects come from domestic financial stress. In addition, the overall impact seems to be more pronounced in production than in market services.


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This is the final version of the paper originally submitted in December 2010, and amended in May 2011.

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