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The Sources of Capital Misallocation

Joel David and Venky Venkateswaran

No 23129, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a methodology to disentangle sources of capital ‘misallocation’, i.e. dispersion in value-added/capital. It measures the contributions of technological/informational frictions and a rich class of firm-specific factors. An application to Chinese manufacturing firms reveals that adjustment costs and uncertainty, while significant, explain only a modest fraction of the dispersion, which stems largely from other factors: a component correlated with productivity and a fixed effect. Adjustment costs are more salient for large US firms, though other factors still account for bulk of the dispersion. Technological/ markup heterogeneity explains a limited fraction in China, but a potentially large share in the US.

JEL-codes: E0 O11 O4 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-bec, nep-eff, nep-mac and nep-tid
Note: EFG PR
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Published as Joel M. David & Venky Venkateswaran, 2019. "The Sources of Capital Misallocation," American Economic Review, vol 109(7), pages 2531-2567.

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