Aggregate productivity and the allocation of resources over the business cycle

Sophie Osotimehin

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: RThis paper proposes a novel decomposition of aggregate productivity to evaluate the role of resource reallocation for the cyclical dynamics of aggregate productivity. The decomposition, which is derived from the aggregation of heterogeneous firm-level production functions, accounts for changes in allocative efficiency, as well as for changes in entry and exit. This approach thereby extends Solow (1957)’s growth accounting exercise to a framework with firm heterogeneity and frictions in the allocation of resources across firms. I apply the decomposition to a comprehensive dataset of French manufacturing and service firms and find that entry and exit contribute little to the year-on-year variability of aggregate productivity. Resource reallocation across incumbent firms, however, plays an important role in the dynamics of aggregate productivity. The efficiency of resource allocation improves during downturns and tend to reduce the volatility of aggregate productivity

Keywords: aggregate productivity; aggregate fluctuations; resource allocation; entry and exit; cleansing (search for similar items in EconPapers)
JEL-codes: D24 E32 O47 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2013-08
New Economics Papers: this item is included in nep-bec, nep-cse, nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://repec.as.virginia.edu/RePEc/vir/virpap/papers/virpap404.pdf (application/pdf)

Related works:
Journal Article: Aggregate productivity and the allocation of resources over the business cycle (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:vir:virpap:404

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