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The productivity puzzle and misallocation: an Italian perspective

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  • Calligaris, Sara
  • Del Gatto, Massimo
  • Hassan, Fadi
  • Ottaviano, Gianmarco I. P.
  • Schivardi, Fabiano

Abstract

Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this “productivity puzzle” is the still short time span for which data can be analysed. An exception is Italy where productivity growth started to stagnate 25 years ago. Italy therefore offers an interesting case to investigate in search of broader lessons that may hold beyond local specific cities. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy's aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources between firms in sectors where technology is changing faster rather than between sectors with different speeds of technological change

Suggested Citation

  • Calligaris, Sara & Del Gatto, Massimo & Hassan, Fadi & Ottaviano, Gianmarco I. P. & Schivardi, Fabiano, 2017. "The productivity puzzle and misallocation: an Italian perspective," LSE Research Online Documents on Economics 86617, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:86617
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    Keywords

    misallocation; TFP; productivity puzzle; Italy;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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