Capital Allocation and Productivity in South Europe

By Gita Gopinath, Sebnem Kalemli‐ozcan, Loukas Karabarbounis, Carolina Villegas-Sanchez. 2017

905 citations recorded by the source corpus.

Following the introduction of the euro in 1999, countries in the South experienced large capital inflows and low productivity. We use data for manufacturing firms in Spain to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor across firms, and a significant increase in productivity losses from misallocation over time. We develop a model of heterogeneous firms facing financial frictions and investment adjustment costs. The model generates cross-sectional and time-series patterns in size, productivity, capital returns, investment, and debt consistent with those observed in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive. We conclude by showing that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/99351e99cdfd464e632a3133c2834fcd19f1f32c

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Citations in the corpus

Productivity and Misallocation in General Equilibrium* (2017, background): “The first markup series is estimated by Gutiérrez and Philippon (2016) and Gutierrez (2017), and relies on inferring markups from measured profits.”
The walking dead? Zombie firms and productivity performance in OECD countries (2018, background): “These findings are significant given that rising capital misallocation is emerging as a key explanation of the productivity slowdown in some countries (Gopinath et al., 2015).”
The pre-Great Recession slowdown in productivity (2015, methodology): “Gopinath et al. (2015) show that the marginal product of capital has become more dispersed in southern Europe, including within manufacturing.”
Labour Reallocation and Productivity Dynamics: Financial Causes, Real Consequences (2016, neutral): “The papers most closely related to ours are Dias et al (2015) and Gopinath et al (2015).”
Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (2018, neutral): “Using a similar firm-level dataset encompassing small firms but without matching it to firms’ banks’ balance sheets, Gopinath et al. (2017) show the importance of firm leverage on misallocation and aggregate productivity dynamics during the boom period, whereas our focus is on investment dynamics du”
The Causes and Costs of Misallocation (2017, neutral): “Gopinath et al. (2015) found that a large part of the increased misallocation of capital in Mediterranean countries after 1999 is accounted for by financial frictions, but the magnitude of the effect is on the order of a 3 percent drop in total factor productivity.”
The Sources of Capital Misallocation (2019, neutral): “Gopinath et al. (2017) show that a richer variant of the standard collateral constraint can have important implications during a period of transition, even if it generates only modest amounts of arpk dispersion in the long-run.”
Productivity growth in Italy: a tale of a slow-motion change (2018, critical): “Last but not least, they find no evidence of zombie lending before the financial crisis, that is providing a further piece of evidence inconsistent with the narrative of Gopinath et al. (2017) for Italy.”