NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Reallocation and Aggregate Productivity

Russell W. Cooper, Immo Schott

NBER Working Paper No. 19715
Issued in December 2013
NBER Program(s):   EFG

This paper studies the productivity implications of the cyclical reallocation of capital. Frictions in the reallocation process are a source of factor misallocation. Cyclical movements in these frictions lead to variations in the degree of reallocation and thus in productivity. These frictions also impact the capital accumulation decision. The effects are quantitatively important in the presence of fluctuations in adjustment frictions and/or the cross sectional variation of profitability shocks. These fluctuations depend on the joint distribution of capital and plant-level productivity rather than mean values alone. Even without aggregate productivity shocks, the model has quantitative properties that resemble those of a standard stochastic growth model: (i) persistent shocks to the Solow residual, (ii) positive comovement of output, investment and consumption and (iii) consumption smoothing.

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This paper was revised on May 14, 2014

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19715

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