Resource Misallocation in European Firms: The Role of Constraints, Firm Characteristics and Managerial Decisions

47 Pages Posted: 5 Apr 2018

See all articles by Yuriy Gorodnichenko

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Deborah Revoltella

European Union - European Investment Bank

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Christoph Weiss

European Union - European Investment Bank

Multiple version iconThere are 3 versions of this paper

Date Written: March 2018

Abstract

Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se.

Keywords: economic growth., firm-specific factors, Marginal products, resource allocation

JEL Classification: D22, D24, O12, O47, O52

Suggested Citation

Gorodnichenko, Yuriy and Revoltella, Deborah and Svejnar, Jan and Weiss, Christoph, Resource Misallocation in European Firms: The Role of Constraints, Firm Characteristics and Managerial Decisions (March 2018). Available at SSRN: https://ssrn.com/abstract=3155157

Yuriy Gorodnichenko (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Deborah Revoltella

European Union - European Investment Bank

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA ( email )

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University of Ljubljana ( email )

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Christoph Weiss

European Union - European Investment Bank ( email )

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