Working Paper: CEPR ID: DP12727
Authors: Christian Bayer; Ariel Mecikovsky; Matthias Meier
Abstract: The seminal paper by Hsieh and Klenow (2009) shows that aggregate TFP losses from misallocation are large, that misallocation is important in explaining international TFP differences, and that these losses can be quantified through factor productivity dispersions. Using micro data from Chile, Colombia, Indonesia, and Germany, we show that there is substantial correlation in factor productivities across factors and therefore propose to decompose dispersion in factor productivities in dispersion in technology and markup instead, which are orthogonal to each other. Relative to Germany, misallocation is larger in the developing economies and the TFP losses from misallocation are explained to 1/3 by larger technology and to 2/3 by larger markup dispersion. Finally, we discuss potential sources of markup and technology dispersion and how they can rationalize the observed dispersions as market outcomes.
Keywords: Productivity; Development; Misallocation; Competition
JEL Codes: D24; E23; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| misallocation (D61) | TFP losses (F16) |
| technology dispersion (O33) | TFP losses (F16) |
| markup dispersion (Y60) | TFP losses (F16) |
| technology differences (L15) | misallocation (D61) |
| markup dispersion (Y60) | productivity losses (J17) |
| persistent misallocation (D51) | productivity losses (J17) |