Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Productivity Dispersion and Misallocation: Industry vs. Market
In the standard approach, misallocation of production inputs is inferred from the dispersion in revenue productivity among firms within the same industry. This paper argues that such dispersion is not necessarily a sign of misallocation when it arises from firms operating in different markets. Using data from the ready-mixed concrete industry, I quantify the extent to which revenue productivity dispersion across markets can lead to overestimation of misallocation. I find that industry-level measures overstate the degree of misallocation by 27 to 36 percentage points.
The Working Papers of Danmarks Nationalbank describe research and development, often still ongoing, as a contribution to the professional debate. The viewpoints and conclusions stated are the responsibility of the individual contributors, and do not necessarily reflect the views of Danmarks Nationalbank.