Micro-level Misallocation and Selection
American Economic Journal: Macroeconomics
vol. 13,
no. 4, October 2021
(pp. 341-68)
Abstract
How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, microfrictions can induce extensive margin misallocation among firms: too many unproductive firms are active (Zombies), and too many productive firms are inactive (Shadows). Therefore, the same set of measured distortions potentially induces much larger aggregate productivity losses, as the composition of firms is shifted toward unproductive active firms. I develop and calibrate a model with plant-level microdata for Indonesia to quantify aggregate welfare in the presence of extensive margin misallocation. My estimates show that selection can magnify aggregate TFP losses from microdistortions by over 40 percent compared to existing estimates. Realistic values of measurement error even increase the relative importance of extensive margin misallocation.Citation
Yang, Mu-Jeung. 2021. "Micro-level Misallocation and Selection." American Economic Journal: Macroeconomics, 13 (4): 341-68. DOI: 10.1257/mac.20160253Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E23 Macroeconomics: Production
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
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