Misallocation or Mismeasurement?
By M. Bils, Peter J. Klenow, Cian Ruane. 2020
136 citations recorded by the source corpus.
The ratio of revenue to inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation which hinders aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error. Our method exploits how revenue growth is less sensitive to input growth when a plant’s average products are overstated by measurement error. For Indian manufacturing from 1985–2013, our correction lowers potential gains from reallocation by 20%. For the U.S. the effect is even more dramatic, reducing potential gains by 60% and eliminating 2/3 of a severe downward trend in allocative efficiency over 1978–2013.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/2d1b9cf5c007a4250c100b23186cf4a50fb2ceb5
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In Economics and Econometrics
- Ron S. Jarmin
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Citations in the corpus
- Changing Business Dynamism and Productivity: Shocks vs. Responsiveness (2018, result): “Labor productivity dispersion has risen in both the firm-level administrative data and the establishment-level survey data, contrary to the Bils et al. (2017) hypothesis of rising measurement error in the ASM.40 Our finding of rising within-industry productivity dispersion is consistent with other w”
- On the Identification of Gross Output Production Functions (2020, background): “Themacroeconomics literature on misallocation is also now employing gross output models of firm-level production (Oberfield 2013; Bils, Klenow, and Ruane 2017).”
- The Sources of Capital Misallocation (2019, unknown): “In an important recent contribution, Bils, Klenow, and Ruane ( 2018 ) propose a method to estimate the role of additive measurement error.”