Hostname: page-component-74656f9884-c52kr Total loading time: 0 Render date: 2026-11-09T04:19:33.784Z Has data issue: false hasContentIssue false
  • English
  • Français

CAPITAL MISALLOCATION AND AGGREGATE FACTOR PRODUCTIVITY

Published online by Cambridge University Press:  19 May 2014

Costas Azariadis  and
Leo Kaas
Costas Azariadis
Affiliation:
Washington University
Leo Kaas*
Affiliation:
University of Konstanz
*
Address correspondence to: Leo Kaas, Department of Economics, University of Konstanz, Box D145, 78457 Konstanz, Germany. E-mail: leo.kaas@uni-konstanz.de.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

We propose a sectoral–shift theory of aggregate factor productivity for a class of multisector economies with AK technologies and a constant production possibilities frontier. Loans are partly secured by collateral and partly based on reputation. We find that both the growth rate and total factor productivity (TFP) respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital, which, in turn, responds to reversible exogenous shifts in relative sector productivities. Endogenous debt limits on secured and unsecured loans slow down capital reallocation, preventing the equalization of risk-adjusted equity yields across sectors. Economywide factor productivity and the aggregate growth rate are both negatively correlated with the dispersion of sectoral rates of return, sectoral TFP, and sectoral growth rates. We also find highly volatile limit cycles in economies with small amounts of collateral.

Keywords

TFPMisallocationSectoral Shocks

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 2: Complexity in Economic Systems , March 2016 , pp. 525 - 543
Copyright
Copyright © Cambridge University Press 2014 

References

REFERENCES

Aghion, P. and Bolton, P. (1997) A theory of trickle-down growth and development. Review of Economic Studies 64, 151–172.CrossRefGoogle Scholar
Alvarez, F. and Jermann, U. (2000) Efficiency, equilibrium, and asset pricing with risk of default. Econometrica 68, 775–797.CrossRefGoogle Scholar
Antinolfi, G., Azariadis, C., and Bullard, J. (2007) Monetary policy as equilibrium selection. Federal Reserve of St. Louis Review 89, 331–341.Google Scholar
Azariadis, C. and Kaas, L. (2009) Capital Misallocation and Aggregate Factor Productivity. Federal Reserve Bank of St. Louis working paper 2009-028.CrossRefGoogle Scholar
Azariadis, C. and Kaas, L. (2012) Self-Fulfilling Credit Cycles. Federal Reserve Bank of St. Louis working paper 2012-047A.CrossRefGoogle Scholar
Bencivenga, V.R. and Smith, B. (1991) Financial intermediation and endogenous growth. Review of Economic Studies 58, 195–209.Google Scholar
Brainard, S. and Cutler, D. (1993) Sectoral shifts and cyclical unemployment reconsidered. Quarterly Journal of Economics 108, 219–243.CrossRefGoogle Scholar
Bulow, J. and Rogoff, K. (1989) Sovereign debt: is to forgive to forget? American Economic Review 79, 43–50.Google Scholar
Chari, V., Kehoe, P., and McGrattan, E. (2007) Business cycle accounting. Econometrica 75, 781–836.CrossRefGoogle Scholar
Diebold, F. and Yilmaz, K. (2008) Macroeconomic Volatility and Stock Market Volatility, Worldwide. NBER working paper 14269.CrossRefGoogle Scholar
Eisfeldt, A. and Rampini, A. (2006) Capital reallocation and liquidity. Journal of Monetary Economics 53, 369–399.CrossRefGoogle Scholar
Greenwood, J. and Jovanovic, B. (1990) Financial development, growth, and the distribution of income. Journal of Political Economy 98, 1076–1107.CrossRefGoogle Scholar
Hall, R. and Jones, C. (1999) Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics 114, 83–116.CrossRefGoogle Scholar
Hellwig, C. and Lorenzoni, G. (2009) Bubbles and self-enforcing debt. Econometrica 77, 1137–1164.Google Scholar
Hsieh, C.-T. and Klenow, P.J. (2009) Misallocation and manufacturing productivity in China and India. Quarterly Journal of Economics 124, 1403–1448.CrossRefGoogle Scholar
Kehoe, T.J. and Levine, D.K. (1993) Debt-constrained asset markets. Review of Economic Studies 60, 865–888.CrossRefGoogle Scholar
Kiyotaki, N. and Moore, J. (1997) Credit cycles. Journal of Political Economy 105, 211–248.CrossRefGoogle Scholar
Klenow, P.J. and Rodriguez-Clare, A. (1997) Economic growth: A review essay. Journal of Monetary Economics 40, 597–617.Google Scholar
Lagos, R. (2006) A model of TFP. Review of Economic Studies 73, 983–1007.CrossRefGoogle Scholar
Loungani, P., Rush, M., and Tave, W. (1990) Stock market dispersion and unemployment. Journal of Monetary Economics 25, 367–388.CrossRefGoogle Scholar
Moll, B. (2009) Creditor Rights, Inequality and Development in a Neoclassical Growth Model. Working paper, University of Chicago.Google Scholar
Parente, S. and Prescott, E. (1999), Barriers to Riches. Cambridge, MA: MIT Press.Google Scholar