The Sources of Capital Misallocation

Joel David and Venky Venkateswaran

American Economic Review, 2019, vol. 109, issue 7, 2531-67

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 the bulk of the dispersion. Technological/markup heterogeneity explains a limited fraction in China, but a potentially large share in the United States.

JEL-codes: D22 D24 D25 E22 G31 L60 O11 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20180336
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Working Paper: The Sources of Capital Misallocation (2017)
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