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Do Productivity Shocks Cause Inputs Misallocation?

Author

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  • Davide Luparello
Abstract
Firms exhibit varying productivity levels even within narrowly defined industries and face uncertainty when predicting future performance. This paper investigates the link between productivity uncertainty, heterogeneity, and misallocation across all inputs. Using a model where heterogeneous firms face staggered productivity shocks, creating gaps between expected and actual productivity, I find a positive association between marginal revenue product dispersions and productivity variability. The analysis reveals that productivity shocks predominantly drive marginal revenue product dispersions. By comparing baseline estimates with those from the factor shares approach, I highlight the limitations of the latter method in analyzing the effects of productivity evolution.

Suggested Citation

  • Davide Luparello, 2023. "Do Productivity Shocks Cause Inputs Misallocation?," Papers 2306.08760, arXiv.org, revised Aug 2024.
    • Handle: RePEc:arx:papers:2306.08760
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    References listed on IDEAS

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    1. Pedro Bento & Diego Restuccia, 2017. "Misallocation, Establishment Size, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 267-303, July.
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    3. Toni M. Whited & Jake Zhao, 2021. "The Misallocation of Finance," Journal of Finance, American Finance Association, vol. 76(5), pages 2359-2407, October.
    4. Susanto Basu, 2019. "Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 3-22, Summer.
    5. Bils, Mark & Klenow, Peter J. & Ruane, Cian, 2021. "Misallocation or Mismeasurement?," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 39-56.
    6. Hugo A. Hopenhayn, 2014. "Firms, Misallocation, and Aggregate Productivity: A Review," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 735-770, August.
    7. Susanto Basu, 2019. "Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence," NBER Working Papers 26057, National Bureau of Economic Research, Inc.
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