IDEAS home Printed from https://ideas.repec.org/p/zbw/eibwps/201806.html
   My bibliography  Save this paper

Resource misallocation in European firms: The role of constraints, firm characteristics and managerial decisions

Author

Listed:
  • Gorodnichenko, Yuriy
  • Revoltella, Debora
  • Švejnar, Jan
  • Weiss, Christoph T.

Abstract

Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se.

Suggested Citation

  • Gorodnichenko, Yuriy & Revoltella, Debora & Švejnar, Jan & Weiss, Christoph T., 2018. "Resource misallocation in European firms: The role of constraints, firm characteristics and managerial decisions," EIB Working Papers 2018/06, European Investment Bank (EIB).
  • Handle: RePEc:zbw:eibwps:201806
    DOI: 10.2867/325364
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/180376/1/1026170168.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.2867/325364?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1915-1967.
    2. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    3. Sebnem Kalemli-Ozcan & Bent E. Sørensen, 2014. "Misallocation, Property Rights, and Access to Finance: Evidence from within and across Africa," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 183-211, National Bureau of Economic Research, Inc.
    4. Elisa Gamberoni & Claire Giordano & Paloma Lopez-Garcia, 2016. "Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants," Questioni di Economia e Finanza (Occasional Papers) 349, Bank of Italy, Economic Research and International Relations Area.
    5. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    6. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    7. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    8. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    9. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    10. Gorodnichenko, Yuriy & Sabirianova Peter, Klara, 2007. "Public sector pay and corruption: Measuring bribery from micro data," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 963-991, June.
    11. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
    12. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    13. Sørensen, Bent E & Kalemli-Özcan, Sebnem & Volosovych, Vadym & Villegas-Sanchez, Carolina & Yesiltas, Sevcan, 2015. "How to construct nationally representative firm level data from the ORBIS global database," CEPR Discussion Papers 10829, C.E.P.R. Discussion Papers.
    14. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    15. Sebnem Kalemli-Ozcan & Bent Sorensen & Carolina Villegas-Sanchez & Vadym Volosovych & Sevcan Yesiltas, 2015. "How to Construct Nationally Representative Firm Level Data from the Orbis Global Database: New Facts and Aggregate Implications," NBER Working Papers 21558, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shalini Mitra, 2018. "Persistent Misallocation and the Productivity Slowdown in EU," Working Papers 201812, University of Liverpool, Department of Economics.
    2. Tiziano Ropele & Yuriy Gorodnichenko & Olivier Coibion, 2024. "Inflation Expectations and Misallocation of Resources: Evidence from Italy," American Economic Review: Insights, American Economic Association, vol. 6(2), pages 246-261, June.
    3. Eric Gargan & Eoin Kenny & Cynthia O'Regan & Conor O'Toole, 2024. "A Cross Country Perspective on Irish Enterprise Investment: Do Fundamentals or Constraints Matter?," The Economic and Social Review, Economic and Social Studies, vol. 55(2), pages 173-215.
    4. Maurin, Laurent & Wolski, Marcin, 2021. "Aggregate productivity slowdown in Europe: New evidence from corporate balance sheets," EIB Working Papers 2021/04, European Investment Bank (EIB).
    5. Maurice J.G. Bun & Jasper Winter, 2022. "Capital and labor misallocation in the Netherlands," Journal of Productivity Analysis, Springer, vol. 57(1), pages 93-113, February.
    6. Anyfantaki, Sofia & Caloghirou, Yannis & Dellis, Konstantinos & Karadimitropoulou, Aikaterini & Petroulakis, Filippos, 2024. "The need for an industrial policy for long-term growth," LSE Research Online Documents on Economics 121983, London School of Economics and Political Science, LSE Library.
    7. Ranasinghe, Ashantha, 2024. "Misallocation across establishment gender," Journal of Comparative Economics, Elsevier, vol. 52(1), pages 183-206.
    8. Norbert Ernst & Nico Pintar & Richard Sellner, 2023. "Resource Misallocation and TFP Gap Development in Austria (Richard Sellner, Nico Pintar, Norbert Ernst)," Working Papers 246, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Sofia Anyfantaki & Yannis Caloghirou & Konstantinos Dellis & Aikaterini Karadimitropoulou & Filippos Petroulakis, 2024. "The 2013 Cypriot Banking Crisis and Blame Attribution: survey evidence from the first application of a bail-in in the Eurozone," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 193, Hellenic Observatory, LSE.
    10. Maurice Bun & Jasper de Winter, 2019. "Measuring trends and persistence in capital and labor misallocation," DNB Working Papers 639, Netherlands Central Bank, Research Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    2. Alam, M. Jahangir, 2020. "Capital misallocation: Cyclicality and sources," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    3. Corrado, Carol & Haskel, Jonathan & Jona-Lasinio, Cecilia, 2019. "Productivity growth, capital reallocation and the financial crisis: Evidence from Europe and the US," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    4. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    5. Zhang, Shangfeng & Chen, Congcong & Xu, Siwa & Xu, Bing, 2021. "Measurement of capital allocation efficiency in emerging economies: evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    6. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    7. Maurin, Laurent & Wolski, Marcin, 2021. "Aggregate productivity slowdown in Europe: New evidence from corporate balance sheets," EIB Working Papers 2021/04, European Investment Bank (EIB).
    8. Dolores Añón Higón & Juan A. Máñez & María E. Rochina-Barrachina & Amparo Sanchis & Juan A. Sanchis, 2022. "Firms’ distance to the European productivity frontier," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 197-228, June.
    9. Maurice Bun & Theoplasti Kolaiti & Tolga Özden, 2023. "Misallocation and Productivity Growth: a Meta-analysis," Working Papers 774, DNB.
    10. Pellegrino, Bruno & Zheng, Geoffery, 2024. "Quantifying the impact of red tape on investment: A survey data approach," Journal of Financial Economics, Elsevier, vol. 152(C).
    11. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.
    12. Daniela Marconi & Christian Upper, 2017. "Capital Misallocation and Financial Development: A Sector-Level Analysis," Temi di discussione (Economic working papers) 1143, Bank of Italy, Economic Research and International Relations Area.
    13. Loredana Fattorini & Mahdi Ghodsi & Armando Rungi, 2020. "Cohesion Policy Meets Heterogeneous Firms," Journal of Common Market Studies, Wiley Blackwell, vol. 58(4), pages 803-817, July.
    14. Trenczek, Jan & Wacker, Konstantin M., 2023. "Human Capital Misallocation and Output per Worker Differences: Beyond Cobb-Douglas," GLO Discussion Paper Series 1331, Global Labor Organization (GLO).
    15. Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2022. "Credit Misallocation During the European Financial Crisis," The Economic Journal, Royal Economic Society, vol. 132(641), pages 391-423.
    16. Viral V. Acharya & Matteo Crosignani & Tim Eisert & Christian Eufinger, 2024. "Zombie Credit and (Dis‐)Inflation: Evidence from Europe," Journal of Finance, American Finance Association, vol. 79(3), pages 1883-1929, June.
    17. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    18. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1915-1967.
    19. Christian Fons-Rosen & Sebnem Kalemli-Ozcan & Bent E. Sørensen & Carolina Villegas-Sánchez & Vadym Volosovych, 2017. "Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects," Working Papers 986, Barcelona School of Economics.
    20. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.

    More about this item

    Keywords

    Marginal products; resource allocation; firm-specific factors; economic growth;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic 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
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:eibwps:201806. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/ceeiblu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.