NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Productivity and Misallocation in General Equilibrium.

David Rezza Baqaee, Emmanuel Farhi

NBER Working Paper No. 24007
Issued in November 2017, Revised in March 2018
NBER Program(s):Economic Fluctuations and Growth

We provide a general non-parametric formula for aggregating microeconomic shocks in general equilibrium economies with distortions such as taxes, markups, frictions to resource reallocation, and nominal rigidities. We show that 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, which can be measured via changes in factor income shares. We derive a formula showing how these two components are determined by structural microeconomic parameters such as elasticities of substitution, returns to scale, factor mobility, and network linkages. Overall, our results generalize those of Solow (1957) and Hulten (1978) to economies with distortions. As examples, we pursue some applications focusing on markup distortions. We operationalize our non-parametric results and show that improvements in allocative efficiency account for about 50% of measured TFP growth over the period 1997-2015. We implement our structural results and conclude that eliminating markups would raise 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).

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24007

Users who downloaded this paper also downloaded* these:
Baqaee and Farhi w23145 The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem
Uras and Wang w23970 Production Flexibility, Misallocation and Total Factor Productivity
Brynjolfsson, Rock, and Syverson w24001 Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics
Kocherlakota w24086 The L-Shaped Phillips Curve: Theoretical Justification and Empirical Implications
Gumpert, Moxnes, Ramondo, and Tintelnot w24013 The Life-Cycle Dynamics of Exporters and Multinational Firms
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us