EIB Working Papers 2018/06 - Resource Misallocation in European Firms

Using EIBIS, this paper shows that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States and estimate potential increases in GDP from the removal of barriers between industries and countries.

It examines the role of firm characteristics and emphasizes that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature.

It also shows that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se.



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The European Investment Bank is the world's biggest multilateral lender. The only bank owned by and representing the interests of the EU countries, the EIB finances Europe's economic growth. Over six decades the Bank has backed start-ups like Skype and massive schemes like the Øresund Bridge linking Sweden and Denmark. Headquartered in Luxembourg, the EIB Group includes the European Investment Fund, a specialist financer of small and medium-sized enterprises.