An Inquiry into Manufacturing Capacity in Italy after the Double-Dip Recession

Abstract

This paper investigate the effects of the prolonged double-dip recession on the productive capacity of the Italian manufacturing sector, employing three methods: a production function approach, a survey-based methodology and a statistical filtering of the industrial production series. We estimate that between 2007 and 2013 capacity contracted by 11i?½17%, depending on the method. We also conduct an exercise to quantify the loss with respect to a counterfactual evolution of capacity in a i?½no-crisisi?½ scenario in which pre-2008 trends are extrapolated: in this case the loss is close to 20% for all methods. Finally, we identify the main sectors of activity responsible for the reduction in capacity in the baseline and counterfactual scenarios, and find that they doni?½t always coincide, reflecting uneven dynamics across sectors before and during the recession.