CFCM Seminar: Ethan Ilzetzki (LSE)

Government purchases and plant level productivity:  Evidence from World War II

Abstract:  

This paper studies the relationship between fiscal policy, productivity, and capacity utilization.
It does so in the context of US World War II munition production, where many plants saw
productivity growth in the face of substantial capacity constraints. Using archival data on the
airframe industry, I show that increases in government purchases raise total factor productivity
measured in quantity units (TFPQ) at the plant level. While low capacity utilization plants
respond to new government purchases with relative increases in utilization, more constrained
plants increase production through TFPQ growth. Increases in TFP are associated with more
outsourcing of production. Shifts in military strategy provide an instrument for demand shifts
across plants specializing in different aircraft types. The study uses detailed data on production,
productivity, and capacity utilization collected by the US War Production Board and Army Air
Force.