TY - JOUR AU - Gorodnichenko, Yuriy AU - Revoltella, Debora AU - Svejnar, Jan AU - Weiss, Christoph T TI - Resource Misallocation in European Firms: The Role of Constraints, Firm Characteristics and Managerial Decisions JF - National Bureau of Economic Research Working Paper Series VL - No. 24444 PY - 2018 Y2 - March 2018 DO - 10.3386/w24444 UR - http://www.nber.org/papers/w24444 L1 - http://www.nber.org/papers/w24444.pdf N1 - Author contact info: Yuriy Gorodnichenko Department of Economics 530 Evans Hall #3880 University of California, Berkeley Berkeley, CA 94720-3880 Tel: 510/643-0720 Fax: 510/642-6615 E-Mail: ygorodni@econ.berkeley.edu Debora Revoltella 98-100, Boulevard Konrad Adenauer L-2950 Luxembourg Europe E-Mail: d.revoltella@eib.org Jan Svejnar School of International and Public Affairs Columbia University 420 West 118th Street, Room 1401E New York, NY 10027 Tel: 734-936-5042 Fax: 734-763-5850 E-Mail: js4085@columbia.edu Christoph T. Weiss 98 Boulevard Konrad Adenauer L-2950 Luxembourg Europe E-Mail: c.weiss@eib.org M2 - featured in NBER digest on 2018-06-28 AB - Using a new survey, we document high dispersion of marginal revenue products across firms in the European Union (EU). To interpret this dispersion, we develop a highly portable framework to quantify gains from better allocation of resources. We demonstrate that, apart from direct measures of distortions, firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal revenue products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We show that cross-country differences in the dispersion of marginal products in the EU are largely due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes rather than to the differences in firm characteristics per se. Removing distortions could raise EU aggregate productivity by 40 percent or more. ER -