The Sources of Capital Misallocation
We develop a methodology to disentangle sources of capital ‘misallocation’, i.e. dispersion in value-added/capital. It measures the contributions of technological/informational frictions and a rich class of firm-specific factors. An application to Chinese manufacturing firms reveals that adjustment costs and uncertainty, while significant, explain only a modest fraction of the dispersion, which stems largely from other factors: a component correlated with productivity and a fixed effect. Adjustment costs are more salient for large US firms, though other factors still account for bulk of the dispersion. Technological/ markup heterogeneity explains a limited fraction in China, but a potentially large share in the US.
A previous version of this paper was circulated under the title “Capital Misallocation: Frictions or Distortions?” We thank the editor and anonymous referees, Pete Klenow, Diego Restuccia, Francisco Buera, Daniel Xu, Richard Rogerson, Matthias Kehrig, Loukas Karabarbounis, Virgiliu Midrigan, Andy Atkeson, Hugo Hopenhayn and Russ Cooper for their helpful suggestions, Nicolas Petrosky-Nadeau and Oleg Itshkoki for insightful discussions, Junjie Xia for assistance with the Chinese data, and many seminar and conference participants for useful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Joel M. David & Venky Venkateswaran, 2019. "The Sources of Capital Misallocation," American Economic Review, vol 109(7), pages 2531-2567. citation courtesy of