Misallocation and Intersectoral linkages

Sophie Osotimehin and Latchezar Popov

Review of Economic Dynamics, 2023, vol. 51, 177-198

Abstract: We analytically characterize the aggregate productivity loss from distortions in the presence of sectoral production linkages and show the key role of input substitutability. We analyze the various forces behind the non-monotonic effect of input substitutability on the productivity loss. We then use the second-order approximation to aggregate productivity and find that for moderate distortions, low input substitutability reduces the productivity loss and the role of intermediate-input suppliers. Moreover, when the input elasticity of substitution is low, sectoral linkages do not systematically amplify the productivity loss. Using the model calibrated on industry-level data for 35 countries, we find that the insights obtained from the approximation are relevant in the context of the sectoral distortions caused by market power, even with the large distortions observed in the data. In particular, we find that using Cobb-Douglas production functions (unit elasticities) instead of accounting for low input substitutability (less-than-one elasticities) leads to overestimating the productivity loss by a factor of 1.8. (Copyright: Elsevier)

Keywords: Aggregate productivity; Input-output; Production network; Misallocation; CES production function; Market power (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2022.12.005
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Misallocation and Intersectoral linkages" (2022)
Working Paper: Online Appendix to "Misallocation and Intersectoral linkages" (2022)
Working Paper: Misallocation and Intersectoral Linkages (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:21-62

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2022.12.005

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().