American Economic Review Vol. 109 No. 7 2019

The Sources of Capital Misallocation

Joel M. David¹; Venky Venkateswaran²

¹ Department of Economics, University of Southern California, Los Angeles, CA 90089 (email: ) · ² Federal Reserve Bank of Minneapolis and NYU Stern School of Business, Department of Economics, New York, NY 10012 (email: )

Abstract

We develop a methodology to disentangle sources of capital “mis-allocation,” 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 the bulk of the dispersion. Technological/markup heterogeneity explains a limited fraction in China, but a potentially large share in the United States.

DOI

10.1257/aer.20180336

Volume

109

Issue

7

Pages

2531-2567

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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