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Title: Misallocation: Markups and Technology

Author(s): Christian Bayer, Ariel Mecikovsky and Matthias Meier

Publication Date: February 2018

Keyword(s): Competition, Development, Misallocation and productivity

Programme Area(s): Macroeconomics and Growth

Abstract: The seminal paper by Hsieh and Klenow (2009) shows that aggregate TFP losses from misallocation are large, that misallocation is important in explaining international TFP differences, and that these losses can be quantified through factor productivity dispersions. Using micro data from Chile, Colombia, Indonesia, and Germany, we show that there is substantial correlation in factor productivities across factors and therefore propose to decompose dispersion in factor productivities in dispersion in technology and markup instead, which are orthogonal to each other. Relative to Germany, misallocation is larger in the developing economies and the TFP losses from misallocation are explained to 1/3 by larger technology and to 2/3 by larger markup dispersion. Finally, we discuss potential sources of markup and technology dispersion and how they can rationalize the observed dispersions as market outcomes.

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Bibliographic Reference

Bayer, C, Mecikovsky, A and Meier, M. 2018. 'Misallocation: Markups and Technology'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12727