Finance and Misallocation: Evidence from Plant-Level Data
American Economic Review
vol. 104,
no. 2, February 2014
(pp. 422-58)
Abstract
We use producer-level data to evaluate the role of financial frictions in determining total factor productivity (TFP). We study a model of establishment dynamics in which financial frictions reduce TFP through two channels. First, finance frictions distort entry and technology adoption decisions. Second, finance frictions generate dispersion in the returns to capital across existing producers and thus productivity losses from misallocation. Parameterizations of our model consistent with the data imply fairly small losses from misallocation, but potentially sizable losses from inefficiently low levels of entry and technology adoption.Citation
Midrigan, Virgiliu, and Daniel Yi Xu. 2014. "Finance and Misallocation: Evidence from Plant-Level Data." American Economic Review, 104 (2): 422-58. DOI: 10.1257/aer.104.2.422Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- F41 Open Economy Macroeconomics
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L60 Industry Studies: Manufacturing: General
- O33 Technological Change: Choices and Consequences; Diffusion Processes
- O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence