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Dynamic Inputs and Resource (Mis)Allocation

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  • John Asker
  • Allan Collard-Wexler
  • Jan De Loecker

Abstract

We investigate the role of dynamic production inputs and their associated adjustment costs in shaping the dispersion of static measures of capital misallocation within industries (and countries). Across nine data sets spanning 40 countries, we find that industries exhibiting greater time-series volatility of productivity have greater cross-sectional dispersion of the marginal revenue product of capital. We use a standard investment model with adjustment costs to show that variation in the volatility of productivity across these industries and economies can explain a large share (80-90 percent) of the cross-industry (and cross-country) variation in the dispersion of the marginal revenue product of capital.

Suggested Citation

  • John Asker & Allan Collard-Wexler & Jan De Loecker, 2014. "Dynamic Inputs and Resource (Mis)Allocation," Journal of Political Economy, University of Chicago Press, vol. 122(5), pages 1013-1063.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/677072
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    References listed on IDEAS

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    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    3. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    4. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
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