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Accounting for Plant-level Misallocation

  • Daniel Yi Xu

    (New York University)

  • Virgiliu Midrigan

    (New York University)

Using a micro-level dataset of all Korean manufacturing plants, we show that dispersion in the average product of capital are 1) volatile and persistent at the plant-level, 2) small at the industry-level (2- and 5-digit industries), and 3) systematically related to the size and age of a plant. Using a model of industry dynamics calibrated to match salient facts on plant-level investment, exit and growth, we find that non-convex capital adjustment costs account for a small fraction (less than 3%) of the observed dispersion in the average product of capital. In contrast, borrowing frictions account for a substantial fraction of the observed dispersion in the average product of capital. We also document the extent to which measurement issues (overhead labor, variable capacity utilization, departures from a Cobb-Douglas production function) can generate some of the observed dispersion in the average revenue product of capital.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 223.

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Date of creation: 2009
Date of revision:
Handle: RePEc:red:sed009:223
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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