EconPapers    
Economics at your fingertips  
 

Productivity and Misallocation in General Equilibrium

David Baqaee and Emmanuel Farhi ()

No 24007, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a general non-parametric formula for aggregating microeconomic shocks in economies with distortions such as taxes, markups, frictions to resource reallocation, and nominal rigidities. 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 reallocation of resources. The latter can be measured via changes in factor income shares. We also derive a formula showing how these two components are determined by structural microeconomic primitives such as elasticities of substitution, returns to scale, factor mobility, and input-output network linkages. Our results generalize those of Solow (1957) and Hulten (1978) to economies with distortions. We pursue some applications focusing on firm-level markups in the US. We find that cumulated improvements in allocative efficiency due to the reallocation over time of market share to high-markup firms account for about half of measured aggregate TFP growth over the period 1997-2015. We also find that eliminating the misallocation resulting from the large and dispersed markups estimated in the data would raise aggregate TFP by about 20%, increasing the economywide cost of monopoly distortions by two orders of magnitude compared to the famous 0.1% estimate by Harberger (1954). These exact numbers should be interpreted with care since the data is imperfect and requires substantial imputation.

JEL-codes: D24 D33 D42 D43 D5 D50 D57 D61 E01 E1 E25 E52 O4 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-11
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w24007.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:nbr:nberwo:24007

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24007

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-05-02
Handle: RePEc:nbr:nberwo:24007