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Good Dispersion, Bad Dispersion

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Listed:
  • Matthias Kehrig
  • Nicolas Vincent

Abstract

We document that most dispersion in marginal revenue products of inputs occurs across plants within firms rather than between firms. This is commonly thought to reflect misallocation: dispersion is “bad.” However, we show that eliminating frictions hampering internal capital markets in a multi-plant firm model may in fact increase productivity dispersion and raise output: dispersion can be “good.” This arises as firms optimally stagger investment activity across their plants over time to avoid raising costly external finance, instead relying on reallocating internal funds. The staggering in turn generates dispersion in marginal revenue products. We use U.S. Census data on multi-plant manufacturing firms to provide empirical evidence for the model mechanism and show a quantitatively important role for good dispersion. Since there is less scope for good dispersion in emerging economies, the difference in the degree of misallocation between emerging and developed economies looks more pronounced than previously thought.

Suggested Citation

  • Matthias Kehrig & Nicolas Vincent, 2024. "Good Dispersion, Bad Dispersion," Working Papers 24-13, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:24-13
    as

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    File URL: https://www2.census.gov/library/working-papers/2024/adrm/ces/CES-WP-24-13.pdf
    File Function: First version, 2024
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Misallocation; Productivity Dispersion; Multi-Plant Firms; Internal Capital Markets.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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