American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Sources of Capital Misallocation
American Economic Review
vol. 109,
no. 7, July 2019
(pp. 2531–67)
Abstract
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 the bulk of the dispersion. Technological/markup heterogeneity explains a limited fraction in China, but a potentially large share in the United States.Citation
David, Joel M., and Venky Venkateswaran. 2019. "The Sources of Capital Misallocation." American Economic Review, 109 (7): 2531–67. DOI: 10.1257/aer.20180336Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- E22 Investment; Capital; Intangible Capital; Capacity
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- L60 Industry Studies: Manufacturing: General
- O11 Macroeconomic Analyses of Economic Development