Misallocation: Markups and Technology

40 Pages Posted: 20 Feb 2018 Last revised: 22 Oct 2018

Date Written: February 2018

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.

Keywords: Competition, Development, Misallocation, productivity

JEL Classification: D24, E23, O47

Suggested Citation

Bayer, Christian and Meier, Matthias, Misallocation: Markups and Technology (February 2018). CEPR Discussion Paper No. DP12727, Available at SSRN: https://ssrn.com/abstract=3126241

Christian Bayer (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Matthias Meier

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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