Grouped Variation in Factor Shares: An Application to Misallocation

International Economic Review, volume 64, issue 1, 2023[10.1111/iere.12605]

71 Pages Posted: 26 Mar 2020 Last revised: 6 Jan 2025

See all articles by Jose Asturias

Jose Asturias

U.S. Census Bureau

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar

Date Written: July 24, 2019

Abstract

A striking feature of micro-level plant data is the presence of significant variation in factor cost shares across plants within an industry. We develop a methodology to decompose this variation into idiosyncratic and group-specific components and to use cluster analysis to recover the number and membership of groups using breaks in the dispersion of factor cost shares across firms. We apply our methodology to Chilean plant-level data and find that group-specific variation accounts for approximately one-third of the variation in factor shares across firms. We motivate our results with an economic model in which group-specific variation can arise from differences in production technologies or through distortions that affect different groups of firms. We evaluate several potential explanations for our results and argue that our findings are most consistent with the interpretation of group-specific variation arising from the presence of multiple production technologies. Under this interpretation, ignoring groups overstates the gains from eliminating mis-allocation by roughly one-third.

Keywords: Cluster Analysis, Mis-allocation

JEL Classification: D24, O11, O47, O14

Suggested Citation

Asturias, Jose and Rossbach, Jack, Grouped Variation in Factor Shares: An Application to Misallocation (July 24, 2019). International Economic Review, volume 64, issue 1, 2023[10.1111/iere.12605], Available at SSRN: https://ssrn.com/abstract=3546842 or http://dx.doi.org/10.1111/iere.12605

Jose Asturias (Contact Author)

U.S. Census Bureau ( email )

4600 Silver Hill Road
D.C., WA 20233
United States

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar ( email )

Education City
Al Huqoul St
Doha
Qatar

HOME PAGE: http://rossbach.georgetown.domains

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