I cannot conclude my remarks without mentioning a piece of work by Loukas that has garnered a lot of attention and that he presented at the workshop on macroeconomics in southern Europe just before this award ceremony. Loukas’s paper, “Capital Allocation and Productivity in South Europe”6, offers an explanation of the productivity decline in southern European countries.
Using data on manufacturing ﬁrms for the period 1999–2012 and a model with size-dependent ﬁnancial frictions, Loukas and his co-authors maintain that in southern European countries the decline in the real interest rates over the past 30 years has led to capital inﬂows mostly towards ﬁrms that have a higher net worth but are not necessarily more productive, resulting in a signiﬁcant decline in total factor productivity over time.