Macroeconomics Seminar - Sophie Osotimehin (Université du Québec à Montréal)

Title: Misallocation and Intersectoral Linkages by Sophie Osotimehim & Latchezar Popov

Abstract: We study how distortions in the allocation of inputs across firms reduce aggregate productivity. We show analytically how the aggregate productivity loss from distortions depends on the input-output structure of the economy and the degree of complementarity between inputs. We find that the production network does not systematically amplify the aggregate productivity loss and that higher complementarity between inputs reduces the effects of distortions. We use the model to quantify the effects of distortions caused by market power in 40 countries. The model indicates that the aggregate productivity cost of markups could be as high as 10 percent of GDP.