Capital Misallocation and Financial Development: A Sector-Level Analysis

Revisiting the real exchange rate misalignment‐economic growth nexus via the across‐sector misallocation channel

“…Third, the three reported emerging economies are again classified very poorly in terms of labor allocation, but capital misallocation appears to be high only in India. Indeed, as also found in Marconi and Upper (2017), capital misallocation is more relevant for advanced countries, whereas labor misallocation is for emerging economies, also reflecting the much lower capital-to-labor ratios in the latter.…”

“…We adopt the same assumption to compute capital compensation for the missing countries from OECD STAN data, which only provides labour compensation of employees. 35 Despite these data-cleaning procedures, in our dataset emerging economies turn out to be more capital-intensive in some of their sectors than advanced economies, a result apparently at odds with their relative technological backwardness, yet possibly due to greater labour market informality, as discussed in Marconi and Upper (2017). To handle this issue, in our baseline computations we use country-specific (time-invariant) capital income shares for the advanced countries of our sample, whereas for emerging economies we adopt the average (time-invariant) capital compensation shares across the advanced countries.…”

“…36 We hence differ from Aoki (2012) and its applications (e.g. Di Stefano & Marconi, 2016;Marconi & Upper, 2017), which adopt the capital income share of the US for all countries. We indeed claim that the shares of all advanced economies, based on official national account data, have no reason to suffer more from measurement bias than those of the US and hence prefer to use country-specific shares as much as possible in order to map actual country-specific trends.…”

“…In particular, we construct Ando and Nassar's (2017) (labor) structural distortion index-given by the gap between sectoral employment share and value added share vectors, in turn a measure of dispersion in sectoral productivities-and Aoki's (2012) dispersion in labor and capital frictions, measured by the divergence in production factor returns across sectors. 2 Our article thus also relates to the inter-sectoral production factor allocation and productivity literature stemming from these indicators, such as Dabla-Norris et al (2015), Di Stefano and Marconi (2016) and Marconi and Upper (2017). Although both measures are "indirect" proxies of misallocation (Restuccia & Rogerson, 2017), which suffer from several well-known measurement issues, their underlying drivers, and in particular their link with REER imbalances, can be assessed in a regression setup.…”

Consequences of Misallocation of Financial Resources on Cost Management: Evidence from Global Markets

“…Organizations are also in the pursuit of improved efficiency; as such, there is a feedback mechanism in place which allows for cost estimates or ratios to be tracked over time (Marconi, D., & Upper, 2017). With this information, it is possible to determine what methods or approaches are most efficient; this then allows for processes to be improved, which in turn leads to increased efficiency.…”