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Misallocation with Capital Heterogeneity
Presented by:
Yu Wang
Department of Economics
Cornell University
Wednesday, November 6, 2024
12:00 pm-1:15 pm
Taylor-Hibbard Seminar Room (Rm103)
We argue that accounting for capital heterogeneity is crucial to understanding the sources and costs of misallocation. Allowing for different types of capital, such as structures and equipment, raises the measured costs of misallocation by 7 percentage points (19%) in the U.S. and 6 percentage points (24%) in India. Across countries, structures are consistently more misallocated than equipment. We then estimate a dynamic model to break down the sources of misallocation that account for the additional measured misallocation and the efficiency differences between equipment and structures. The results show that adjustment costs and imperfect information alone cannot fully explain the additional misallocation or why structures are more misallocated. Heterogeneous financial constraints and tax policies may contribute to the higher misallocation of structures, while differences in technology and measurement errors play only modest roles.