How much does the intra-sectoral dispersion of inefficiency weight on the aggregate productivity in the Polish Economy?

Michał Gradzewicz

No 385, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper quantifies the magnitude and evolution of the efficiency of resource allocation in the Polish enterprise sector over 1993–2023 using a near-census of non-financial firms with 10+ employees. The baseline approach follows Hsieh and Klenow (2009) and shows that hypothetical elimination of within-industry inefficiencies generate sizeable and rising gains in productivity and value added, increasing from close to 40% of value added in the 1990s to roughly 70–75% in the early 2020s. Deteriorating allocation efficiency of resources is robust to changes in the identification scheme and to changes in the underlying model (accounting for wedges related to the use of materials or allowing for non-unit economies of scale and markups that vary across sectors). The efficiency of allocation worsens primarily in services and is due to entry and exit, rather than within-cohort dynamics. Firm-level regressions show that high-productive firms and middle-sized firms are disproportionately too small, that non-exporters and more profitable firms exhibit larger wedges, and that subsidies are conductive to better allocation of resources, while the same characteristics often have opposing effects on actual growth of firms’ value added. It implies that market forces and policies do not systematically steer firms toward efficient scales. Deteriorating allocation efficiency can also be a factor explaining the slowdown of productivity growth in the Polish economy since the 2000s.

Keywords: allocation efficiency; productivity; misallocation; firm dynamics; markups; returns to scale; production function; Poland (search for similar items in EconPapers)
JEL-codes: C23 D24 E23 E25 O47 (search for similar items in EconPapers)
Pages: 52
Date: 2026
New Economics Papers: this item is included in nep-sbm
Note: I would like to thank an anonymous referee for the NBP Working Papers Series, participants of the seminars at: Narodowy Bank Polski, Warsaw Economic Seminar, the Institute of Economics of the Polish Academy of Sciences, and CESEE.net Workshop in Bratislava for comments and discussions; and especially Katarzyna Puchalska for valuable help in extending the datasets for the early transition period. The views expressed herein are those of the author and have not been endorsed by Narodowy Bank Polski. The data used in the study is confidential and is not shared.
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:385

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