How much does the intra-sectoral dispersion of inefficiency weight on the aggregate productivity in the Polish Economy?

This paper quantifies the magnitude and evolution of the efficiency of resource allocation in the Polish enterprise sector over 1993–2023 using a near-census of non-financial firms with 10+ employees. The baseline approach follows Hsieh and Klenow (2009) and shows that hypothetical elimination of within-industry inefficiencies generate sizeable and rising gains in productivity and value added, increasing from close to 40% of value added in the 1990s to roughly 70–75% in the early 2020s. Deteriorating allocation efficiency of resources is robust to changes in the identification scheme and to changes in the underlying model (accounting for wedges related to the use of materials or allowing for non-unit economies of scale and markups that vary across sectors). The efficiency of allocation worsens primarily in services and is due to entry and exit, rather than within-cohort dynamics. Firm-level regressions show that high-productive firms and middle-sized firms are disproportionately too small, that non-exporters and more profitable firms exhibit larger wedges, and that subsidies are conductive to better allocation of resources, while the same characteristics often have opposing effects on actual growth of firms’ value added. It implies that market forces and policies do not systematically steer firms toward efficient scales. Deteriorating allocation efficiency can also be a factor explaining the slowdown of productivity growth in the Polish economy since the 2000s.