Constrained-Efficient Capital Reallocation

Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical or even countercyclical. This article reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of stylized facts about capital reallocation for the United States 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.

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Efficient horizontal mergers: The effects of internal capital reallocation and organizational form

International Journal of Industrial Organization ◽

10.1016/j.ijindorg.2007.07.004 ◽

2008 ◽

Vol 26 (4) ◽

pp. 861-877 ◽

Cited By ~ 12

Author(s):

Sue H. Mialon

Keyword(s):

Organizational Form ◽

Horizontal Mergers ◽

Internal Capital ◽

Capital Reallocation

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Managerial incentives, capital reallocation, and the business cycle

Journal of Financial Economics ◽

10.1016/j.jfineco.2006.11.007 ◽

2008 ◽

Vol 87 (1) ◽

pp. 177-199 ◽

Cited By ~ 92

Author(s):

Andrea L. Eisfeldt ◽

Adriano A. Rampini

Keyword(s):

Business Cycle ◽

Managerial Incentives ◽

Capital Reallocation ◽

The Business Cycle

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Impaired Capital Reallocation and Productivity

National Institute Economic Review ◽

10.1177/002795011422800104 ◽

2014 ◽

Vol 228 ◽

pp. R35-R48 ◽

Cited By ~ 14

Author(s):

Alina Barnett ◽

Ben Broadbent ◽

Adrian Chiu ◽

Jeremy Franklin ◽

Helen Miller

Keyword(s):

Labour Productivity ◽

Productivity Loss ◽

Capital Allocation ◽

Rates Of Return ◽

Firm Level ◽

Capital Movements ◽

Level Data ◽

Capital Reallocation ◽

The Uk ◽

The Relationship

The level of private sector labour productivity has been particularly weak since the start of the crisis. In this paper we explore whether impairment to capital reallocation has been contributing to this weakness. The recent increase in the dispersion of output, prices and rates of return across firms and sectors is stark, and suggests that resources have had incentives to move. Efficient allocation requires that capital moves to firms and sectors where rates of return are relatively high. And the change in capital levels across sectors has been particularly low, suggesting there has been an unusually slow process of capital reallocation since 2008 compared to previous UK recessions and other banking crises. This result is also apparent within sectors. We use a simple and general model to show that increased price dispersion can be a consequence of frictions to efficient capital allocation. And the size of this dispersion can usefully inform us about the size of the associated output and productivity loss. We then find that – using firm level data – the relationship between rates of return and subsequent capital movements has changed since the financial crisis. Overall, our results suggest that impaired capital reallocation across the UK economy is likely to have been one factor contributing to the recent weakness in productivity growth.

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