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Misallocation: Markups and Technology

Christian Bayer, Ariel Mecikovsky and Matthias Meier

No 12727, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The seminal paper by Hsieh and Klenow (2009) shows that aggregate TFP losses from misallocation are large, that misallocation is important in explaining international TFP differences, and that these losses can be quantified through factor productivity dispersions. Using micro data from Chile, Colombia, Indonesia, and Germany, we show that there is substantial correlation in factor productivities across factors and therefore propose to decompose dispersion in factor productivities in dispersion in technology and markup instead, which are orthogonal to each other. Relative to Germany, misallocation is larger in the developing economies and the TFP losses from misallocation are explained to 1/3 by larger technology and to 2/3 by larger markup dispersion. Finally, we discuss potential sources of markup and technology dispersion and how they can rationalize the observed dispersions as market outcomes.

Keywords: Competition; Development; Misallocation; productivity (search for similar items in EconPapers)
JEL-codes: D24 E23 O47 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-eff, nep-mac, nep-sea and nep-tid
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