Capital Allocation and Productivity in South Europe

Gita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis and Carolina Villegas-Sanchez ()

No 21453, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Starting in the early 1990s, countries in southern Europe experienced low productivity growth alongside declining real interest rates. We use data for manufacturing firms in Spain between 1999 and 2012 to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor, and a significant increase in productivity losses from capital misallocation over time. We develop a model with size-dependent financial frictions that is consistent with important aspects of firms' behavior in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a significant decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive. We show that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.

JEL-codes: D24 E22 F41 O16 O47 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-dge, nep-eff, nep-mac and nep-opm
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Published as Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe*," The Quarterly Journal of Economics, vol 132(4), pages 1915-1967.

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Journal Article: Capital Allocation and Productivity in South Europe (2017)
Working Paper: Capital Allocation and Productivity in South Europe (2015)
Working Paper: Capital Allocation and Productivity in South Europe (2015)
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