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Natalie BAU (UCLA) – "Misallocation and Capital Market Integration: Evidence From India"
Time: 12:15 pm – 1:30 pm
Date: 19 th of November 2019
Place: Room 3001
Natalie BAU (UCLA) – “Misallocation and Capital Market Integration: Evidence From India”
Abstract: Using the staggered liberalization of access to foreign capital across highly disaggregated Indian industries, we show that reducing capital misallocation increases aggregate productivity. The natural policy experiment allows us to credibly identify changes in firms’ input wedges, addressing major challenges in the measurement of misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increased revenues by 18%, physical capital by 60%, wage bills by 26%, and reduced the marginal revenue product of capital by 43% relative to low MRPK firms. There were no effects on firms with low MRPK. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign investors may substitute for an efficient banking sector. Finally, we develop a method to use natural experiments to estimate the lower bound effect of changes in misallocation on manufacturing productivity and conclude that the liberalization increased the aggregate productivity of the Indian manufacturing sector by at least 3.3%.
Xavier D’HAULTFOEUILLE (Laboratoire de Microéconométrie-CREST)
Benoît SCHMUTZ (Laboratoire de Microéconométrie-CREST)