Capital Allocation in Developing Countries
This paper investigates the sources of capital misallocation across a group of 11 developing and developed countries. The main findings are (i) technological frictions, namely, adjustment costs and uncertainty, account for only a modest share of ob...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/495981569952792642/Capital-Allocation-in-Developing-Countries http://hdl.handle.net/10986/32491 |
| Summary: | This paper investigates the sources of
capital misallocation across a group of 11 developing and
developed countries. The main findings are (i) technological
frictions, namely, adjustment costs and uncertainty, account
for only a modest share of observed misallocation, leaving
ample scope for other factors; (ii) heterogeneity in
firm-level technologies potentially explains between
one-quarter and one-half; but (iii) dispersion in markups is
much smaller; and (iv) after accounting for these factors,
on average, at least 50 percent of misallocation within each
of these countries remains unexplained, suggesting a large
role for additional, potentially distortionary factors.
These factors are largely attributable to a component that
is correlated with firm size/productivity and one that is
essentially permanent to the firm. The paper reports a broad
set of moments describing firm-level investment dynamics and
detailed parameter estimates on a country-by-country basis,
with an eye toward future work in this area. |
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