Publication: Capital Allocation in Developing Countries
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2019-10
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2019-10-04
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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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“David, Joel M.; Venkateswaran, Venky; Cusolito, Ana Paula; Didier, Tatiana. 2019. Capital Allocation in Developing Countries. Policy Research Working Paper;No. 9031. © World Bank. http://hdl.handle.net/10986/32491 License: CC BY 3.0 IGO.”
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