Capital Reallocation

Andrea L. Eisfeldt, Yu Shi

NBER Working Paper No. 25085
Issued in September 2018
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth

Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical, or even countercyclical. This paper reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of capital reallocation stylized facts for the US, and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions, and on resource misallocation and aggregate productivity. Throughout, we provide directions for future research.

Supplementary materials for this paper:

• data appendix

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w25085

Published: Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," Annual Review of Financial Economics, vol 10(1), pages 361-386.