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Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants

Elisa Gamberoni, Claire Giordano () and Paloma Lopez-Garcia ()

No 349, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts stand out. First, in all countries except Germany, capital allocation worsened over time whereas the efficiency of labour reallocation did not change significantly. Second, the observed increase in capital misallocation has been particularly marked in services compared with industry. Third, misallocation of both labour and capital decreased in all countries in 2009 and again for some countries/sectors in 2011-2012. We then take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Restrictive bank lending standards and heightened demand uncertainty in certain years led to growth in capital misallocation, whereas since 2002 overall deregulation in both the product and labour markets has helped dampen input misallocation dynamics. Controlling for all variables, the Great Recession per se improved the allocative efficiency of both capital and labour.

Keywords: total factor productivity; allocative efficiency; capital; labour; Great Recession (search for similar items in EconPapers)
JEL-codes: D24 D61 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-sog
Date: 2016-09
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