Finance and misallocation: Evidence from plant-level data

Journal Article (Journal Article)

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. Copyright © 2014 by the American Economic Association.

Full Text

Duke Authors

Cited Authors

  • Midrigan, V; Xu, DY

Published Date

  • February 1, 2014

Published In

Volume / Issue

  • 104 / 2

Start / End Page

  • 422 - 458

International Standard Serial Number (ISSN)

  • 0002-8282

Digital Object Identifier (DOI)

  • 10.1257/aer.104.2.422

Citation Source

  • Scopus