DP12727 Misallocation, Markups, and Technology

Author(s): Christian Bayer, Matthias Meier
Publication Date: February 2018
Keyword(s): Competition, Development, Misallocation, productivity
JEL(s): D24, E23, O47
Programme Areas: Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12727

Hsieh and Klenow (2009) quantifies aggregate TFP losses from misallocation through factor productivity dispersions and finds misallocation important in explaining international TFP differences. Using micro data from Chile, Colombia, Indonesia, and Germany, we document that dispersion in factor productivities is driven by dispersion in technology and markup. Relative to Germany, misallocation losses for the developing economies are explained to 1/3 by larger technology and to 2/3 by larger markup dispersion. Finally, we show that increased competition reduces technology dispersions but can cause larger markup dispersions as does more innovation. Hence, looking at markup dispersions alone might be misleading.