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Aggregate productivity and the allocation of resources over the business cycle

  • Sophie Osotimehin

    ()

RThis paper proposes a novel decomposition of aggregate productivity to evaluate the role of resource reallocation for the cyclical dynamics of aggregate productivity. The decomposition, which is derived from the aggregation of heterogeneous firm-level production functions, accounts for changes in allocative efficiency, as well as for changes in entry and exit. This approach thereby extends Solow (1957)’s growth accounting exercise to a framework with firm heterogeneity and frictions in the allocation of resources across firms. I apply the decomposition to a comprehensive dataset of French manufacturing and service firms and find that entry and exit contribute little to the year-on-year variability of aggregate productivity. Resource reallocation across incumbent firms, however, plays an important role in the dynamics of aggregate productivity. The efficiency of resource allocation improves during downturns and tend to reduce the volatility of aggregate productivity

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap404.pdf
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Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 404.

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Length: 50 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:vir:virpap:404
Contact details of provider: Web page: http://www.virginia.edu/economics/home.html

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  1. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  2. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  3. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
  4. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  5. Min Ouyang, 2005. "The Scarring Effect of Recessions," Computing in Economics and Finance 2005 205, Society for Computational Economics.
  6. Yoonsoo Lee & Toshihiko Mukoyama, 2008. "Entry, exit and plant-level dynamics over the business cycle," Working Paper 0718, Federal Reserve Bank of Cleveland.
  7. Susanto Basu & John G. Fernald, 1997. "Aggregate productivity and aggregate technology," International Finance Discussion Papers 593, Board of Governors of the Federal Reserve System (U.S.).
  8. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2009. "Productivity, Welfare and Reallocation: Theory and Firm Level Evidence," Boston College Working Papers in Economics 728, Boston College Department of Economics, revised 12 Jul 2010.
  9. Sophie Osotimehin & Francesco Pappada, . "Credit frictions and the cleansing effect of recessions," Virginia Economics Online Papers 403, University of Virginia, Department of Economics.
  10. Amil Petrin & T. Kirk White & Jerome P. Reiter, 2009. "The Impact of Plant-Level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth," Working Papers 09-43, Center for Economic Studies, U.S. Census Bureau.
  11. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings 508, Econometric Society.
  12. Bresnahan, Timothy F. & Raff, Daniel M. G., 1991. "Intra-Industry Heterogeneity and the Great Depression: The American Motor Vehicles Industry, 1929–1935," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 317-331, June.
  13. Fisher, Franklin M, 1969. "The Existence of Aggregate Production Functions," Econometrica, Econometric Society, vol. 37(4), pages 553-77, October.
  14. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
  15. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  16. Amil Petrin & James Levinsohn, 2005. "Measuring Aggregate Productivity Growth Using Plant-Level Data," Working Papers 552, Research Seminar in International Economics, University of Michigan.
  17. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
  18. Malinvaud, Edmond, 1993. "A framework for aggregation theories," Ricerche Economiche, Elsevier, vol. 47(2), pages 107-135, June.
  19. Amil Petrin & James Levinsohn, 2005. "Measuring and Mismeasuring Industry Productivity Growth Using Plant-Level Data," 2005 Meeting Papers 214, Society for Economic Dynamics.
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