Misallocation of Capital across Firm Size in Developing Countries
Abstract/Contents
- Abstract
- In the development literature, there is a common conception that small firms disproportionately lack access to credit compared to large firms, leading them to under-invest in high return opportunities. Using firm-level data from the World Bank Enterprise Surveys in 106 developing countries, I investigate whether the distribution of returns to capital across firm size is consistent with this conception. Instead of finding higher returns to capital for smaller firms as predicted by the hypothesis, I find that the marginal return to capital increases with firm size in 43 countries. I then explore possible explanations behind this relationship involving heterogeneity in production elasticities, adjustment costs, markups, and risk. I find that a trade-off exists between the higher returns for large firms and higher levels of risk. After determining the relationship between returns to capital and firm size, I estimate that reallocating capital to eliminate misallocation related to firm size would lead to a 5% productivity gain on average.
Description
Type of resource | text |
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Date created | May 6, 2021 |
Creators/Contributors
Author | Grondin, Armelle Marie-Naniette | |
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Degree granting institution | Stanford University, Department of Economics | |
Primary advisor | Klenow, Peter |
Subjects
Subject | Department of Economics |
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Subject | misallocation |
Subject | developing countries |
Subject | marginal returns to capital |
Subject | small and medium sized enterprises |
Genre | Thesis |
Bibliographic information
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- Use and reproduction
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Preferred citation
- Preferred Citation
- Grondin, Armelle (2021). Misallocation of Capital across Firm Size in Developing Countries. Stanford Digital Repository. Available at: https://purl.stanford.edu/jz567gx0861
Collection
Stanford University, Department of Economics, Honors Theses
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- Contact
- armellegrondin@hotmail.com
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