Credit Shocks: Influences on Labor Productivity through the Input-Output Network

Abstract. Using panel data from 2013 to 2018, we investigate how bank credit shocks influence labor productivity within Brazil’s input-output network. We analyze both the immediate effects on specific sectors and the ripple effects that propagate upstream (from consumers to suppliers) and downstream (from suppliers to consumers). Our findings show that labor productivity is impacted by both direct and indirect bank credit shocks. Boosting a sector’s credit by one standard deviation increases labor productivity by 0.18 percentage points, whereas a one standard deviation rise in downstream shocks within the input-output network reduces labor productivity by 0.36 to 0.39 percentage points. Our research employs a panel model utilizing the generalized method of moments technique, with a focus on the effects of bank credit shocks, shifting the emphasis away from conventional sector-level productivity growth. This study enhances our understanding of how bank credit shocks impact sectoral labor productivity, providing valuable insights for policymakers and financial institutions. Keywords: Bank Credit Shocks, Input-Output Network, Labor Productivity