EconPapers    
Economics at your fingertips  
 

Productivity and Misallocation in General Equilibrium

David Baqaee and Emmanuel Farhi ()

No 1735, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We provide a general non-parametric formula for aggregating microeconomic shocks in general equilibrium economies with distortions such as taxes, markups, frictions to resource reallocation, and nominal rigidities. We show that the macroeconomic impact of a shock can be boiled down into two components: its “pure” technology effect; and its effect on allocative efficiency arising from the associated reallocation of resources, which can be measured via changes in factor income shares. We also derive a formula showing how these two components are determined by structural microeconomic parameters such as elasticities of substitution, returns to scale, factor mobility, and network linkages. Overall, our results generalize those of Solow (1957) and Hulten (1978) to economies with distortions. To demonstrate their empirical relevance, we pursue different applications, focusing on markup distortions. For example, we operationalize our non-parametric results and show that improvements in allocative efficiency account for about 50% of measured TFP growth over the period 1997-2015. We also implement our structural results and conclude that eliminating markups would raise TFP by about 40%, increasing the economywide cost of monopoly distortions by two orders of magnitude compared to the famous 0.1% estimates of Harberger (1954).

Date: 2017-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://www.centreformacroeconomics.ac.uk/Discussio ... MDP2017-35-Paper.pdf (application/pdf)

Related works:
Working Paper: Productivity and Misallocation in General Equilibrium (2018) Downloads
Working Paper: Productivity and Misallocation in General Equilibrium (2017) Downloads
Working Paper: Productivity and misallocation in general equilibrium (2017) Downloads
Working Paper: Productivity and Misallocation in General Equilibrium (2017) Downloads
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:cfm:wpaper:1735

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Martin Hannon ().

 
Page updated 2019-11-16
Handle: RePEc:cfm:wpaper:1735