Learning by necessity: government demand, capacity constraints, and productivity growth
Ilzetzki, E.
(2024).
Learning by necessity: government demand, capacity constraints, and productivity growth.
American Economic Review,
114(8), 2436 – 2471.
https://doi.org/10.1257/aer.20230033
(2024).
Learning by necessity: government demand, capacity constraints, and productivity growth.
American Economic Review,
114(8), 2436 – 2471.
https://doi.org/10.1257/aer.20230033
This paper studies how firms adapt to demand shocks when facing capacity constraints. I show that increases in government purchases raise total factor productivity in quantity units at the production line level. Productivity gains are concentrated in plants facing tighter capacity constraints, a phenomenon I call "learning by necessity." Evidence is based on newly digitized archival data on US World War II aircraft production. Shifts in demand across aircraft with different strategic roles provide an instrument for aircraft demand. I show that plants adapted to surging demand by improving production methods, outsourcing, and combating absenteeism, primarily when facing tighter capacity constraints.
Explore Further
- D20 - General
- D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
- E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
- L93 - Air Transportation
- N12 - U.S.; Canada: 1913-
- N42 - U.S.; Canada: 1913-
- N62 - U.S.; Canada: 1913-
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Ilzetzki, E.
(2024).
Compute capsule for: Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth.
[Dataset]. Code Ocean.
https://doi.org/10.24433/co.6241693.v2
-
Ilzetzki, E.
(2024).
Compute capsule for: Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth (Matlab appendix computational analysis).
[Dataset]. Code Ocean.
https://doi.org/10.24433/co.8807650.v1
