Good Dispersion, Bad Dispersion

53 Pages Posted: 11 Jun 2019

See all articles by Matthias Kehrig

Matthias Kehrig

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nicolas Vincent

HEC Montreal - Institute of Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2019

Abstract

Dispersion in marginal revenue products of inputs across plants is commonly thought to reflect misallocation, i.e., dispersion is "bad." We document that most dispersion occurs across plants within rather than between firms. In a model of multi-plant firms, we then show that dispersion can be "good": Eliminating frictions increases productivity dispersion and raises overall output. Based on this framework, we argue that in U.S. manufacturing, one-quarter of the total variance of revenue products reflects good dispersion. In contrast, we find that in emerging economies, almost all dispersion is bad and the gains from eliminating distortions are larger than previously thought.

Keywords: Internal Capital Markets, Misallocation, Multi-Plant Firms, Productivity dispersion

JEL Classification: E2, G3, L2, O4

Suggested Citation

Kehrig, Matthias and Vincent, Nicolas, Good Dispersion, Bad Dispersion (June 2019). CEPR Discussion Paper No. DP13772, Available at SSRN: https://ssrn.com/abstract=3401859

Matthias Kehrig (Contact Author)

Duke University ( email )

237 Social Sciences
Box 90097
Durham, NC 27708-0097
United States

HOME PAGE: http://sites.google.com/site/matthiaskehrig/research

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nicolas Vincent

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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