Misallocation or Mismeasurement?

Mark Bils, Peter J. Klenow and Cian Ruane

No 26711, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The ratio of revenue to inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation which hinders aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error. Our method exploits how revenue growth is less sensitive to input growth when a plant’s average products are overstated by measurement error. For Indian manufacturing from 1985-2013, our correction lowers potential gains from reallocation by 20%. For the U.S. the effect is even more dramatic, reducing potential gains by 60% and eliminating 2/3 of a severe downward trend in allocative efficiency over 1978-2013.

JEL-codes: O14 O41 O47 O51 O53 (search for similar items in EconPapers)
Date: 2020-01
Note: EFG PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published as Mark Bils & Peter J. Klenow & Cian Ruane, 2021. "Misallocation or Mismeasurement?," Journal of Monetary Economics, .

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Working Paper: Misallocation or Mismeasurement? (2020)
Working Paper: Misallocation or Mismeasurement? (2017)
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