NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Good Dispersion, Bad Dispersion

Matthias Kehrig, Nicolas Vincent

NBER Working Paper No. 25923
Issued in June 2019
NBER Program(s):The Corporate Finance Program, The Economic Fluctuations and Growth Program, The Productivity, Innovation, and Entrepreneurship Program

Dispersion in marginal revenue products of inputs across plants is commonly thought to reflect misallocation, i.e., dispersion is "bad." We document that most dispersion occurs across plants within rather than between firms. In a model of multi-plant firms, we then show that dispersion can be "good": Eliminating frictions increases productivity dispersion and raises overall output. Based on this framework, we argue that in U.S. manufacturing, one-quarter of the total variance of revenue products reflects good dispersion. In contrast, we find that in emerging economies, almost all dispersion is bad and the gains from eliminating distortions are larger than previously thought.

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Document Object Identifier (DOI): 10.3386/w25923

 
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