The productivity puzzle and misallocation: an Italian perspective

Abstract

Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this "productivity puzzle" is the still short time span for which data can be analysed. An exception is Italy where productivity growth started to stagnate 25 years ago. Italy therefore offers an interesting case to investigate in search of broader lessons that may hold beyond local specific cities. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy's aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources between firms in sectors where technology is changing faster rather than between sectors with different speeds of technological change.

Can Industrial Co-Agglomeration between Producer Services and Manufacturing Reduce Carbon Intensity in China?

“…In-depth analysis of the mystery of low productivity growth in southern European countries, Gopinath et al [39] found that capital misallocation seriously hindered economic development and inhibited productivity growth. Furthermore, Calligaris et al [40] also proposed that resource misallocation hinders productivity. Han and Zhang [41] put forward that excessive government intervention is an important reason for resource misallocation.…”

Resource misallocation and total factor productivity: Manufacturing firms in South Africa

“…First, small firms are considered an important engine for growth and job creation in developing countries. Distortions in the economy that prevent the most efficient firms from accessing capital and labour within this size group could have detrimental effects for the 1 See, for example, Calligaris et al (2018) for evidence from Italy; and Fujii and Nozawa (2013) for evidence from Japan. 2 Exceptions include Chen and Irarrazabal (2015), who find that misallocation decreased in Chile during the growth period following the crisis in the early 1980s, and that this was an important source of productivity growth.…”

Measuring Trends and Persistence in Capital and Labor Misallocation

“…Misallocation of capital has been on the rise since the turn of the millennium in several European countries (see e.g. Gopinath et al, 2017, Gamberoni et al, 2016and Calligaris et al, 2018. Our analysis focuses on the evolution of resource misallocation in the Netherlands.…”

“…3 The larger the standard deviation, the higher the degree of misallocation. Calligaris (2015) and Calligaris et al (2018) also find steadily increasing misallocation in Italy.…”

“…To quantitatively assess the effect of within-industry resource misallocation on aggregate total factor productivity we build on the framework developed by Hsieh and Klenow (2009), recently applied by i.e. Gopinath et al (2017), Gamberoni et al (2016), Calligaris (2015), Calligaris et al (2018) and others. The Hsieh and Klenow model formally shows that frictions distorting the marginal revenue products of capital and labor lower aggregate factor productivity.…”