Working Paper: NBER ID: w24444
Authors: Yuriy Gorodnichenko; Debora Revoltella; Jan Svejnar; Christoph T. Weiss
Abstract: Using a new survey, we document high dispersion of marginal revenue products across firms in the European Union (EU). To interpret this dispersion, we develop a highly portable framework to quantify gains from better allocation of resources. We demonstrate that, apart from direct measures of distortions, firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal revenue products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We show that cross-country differences in the dispersion of marginal products in the EU are largely due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes rather than to the differences in firm characteristics per se. Removing distortions could raise EU aggregate productivity by 40 percent or more.
Keywords: resource misallocation; marginal revenue products; firm characteristics; managerial decisions; EU productivity
JEL Codes: D22; D24; O12; O47; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| resource reallocation efficiency (D61) | productivity gains (O49) |
| institutional and policy environment (O17) | productivity outcomes (O49) |
| firm characteristics (L20) | resource allocation (H61) |
| resource allocation (H61) | productivity improvements (O49) |
| firm characteristics (L20) | MRP (C59) |
| demographics, quality of inputs, resource utilization (J24) | MRP (C59) |