Working Paper: NBER ID: w23129
Authors: Joel M. David; Venky Venkateswaran
Abstract: We develop a methodology to disentangle sources of capital ‘misallocation’, i.e. dispersion in value-added/capital. It measures the contributions of technological/informational frictions and a rich class of firm-specific factors. An application to Chinese manufacturing firms reveals that adjustment costs and uncertainty, while significant, explain only a modest fraction of the dispersion, which stems largely from other factors: a component correlated with productivity and a fixed effect. Adjustment costs are more salient for large US firms, though other factors still account for bulk of the dispersion. Technological/ markup heterogeneity explains a limited fraction in China, but a potentially large share in the US.
Keywords: capital misallocation; adjustment costs; productivity; firm dynamics
JEL Codes: E00; O11; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adjustment costs (J30) | ARPK dispersion (C22) |
| Uncertainty (D89) | ARPK dispersion (C22) |
| Other firm-specific factors (L29) | ARPK dispersion (C22) |
| Adjustment costs (J30) | TFP losses (F16) |
| Uncertainty (D89) | TFP losses (F16) |
| Other firm-specific factors (L29) | TFP losses (F16) |
| Adjustment costs (US) (J32) | ARPK dispersion (US) (C22) |
| Uncertainty (US) (D89) | ARPK dispersion (US) (C22) |
| Unobserved heterogeneity in markups and production technologies (US) (D29) | ARPK dispersion (US) (C22) |
| Unobserved heterogeneity in markups and production technologies (China) (D29) | ARPK dispersion (China) (D39) |