The Importance of Reallocation in Cyclical Productivity and Returns to Scale: Evidence from Plant-level Data
نویسنده
چکیده
This paper provides new evidence that estimates obtained from aggregated data may not provide reliable estimates of average firm-level parameters, if the composition of producers with different levels of productivity changes over the business cycle. I examine plant-level data and show that, due to the countercyclical reallocation of output among heterogenous plants, productivity measures based on aggregate data do not reflect the actual path of productivity of a representative firm over the business cycle. Countercyclical reallocation may also bias aggregate estimates of returns to scale and help explain why decreasing returns to scale are found in industry-level data. JEL Classification: D24, E32, O47
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