Tito Boeri, Andrea Ichino, Enrico Moretti, Johanna Posch, 13 April 2019

In many European countries, wages are determined by collective bargaining agreements intended to improve wages and reduce inequality. This column compares the impact of different wage bargaining models in Italy, which has limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, and Germany, which has a tighter link between local wages and local productivity. The Italian system is successful at reducing nominal wage inequality, but creates costly geographic imbalances. If Italy were to adopt the German system, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively. 

Dan Andrews, Filippos Petroulakis, 04 April 2019

Europe’s productivity problem is partly due to the rise of zombie firms that crowd out growth opportunities for others. This column explores the tendency for weak banks to evergreen loans to zombie firms to avoid realising losses on their balance sheet. Measures to strengthen bank balance sheets will be enhanced by insolvency regimes that encourage corporate restructuring.

Matt Lowe, Chris Papageorgiou, Fidel Pérez Sebastián, 20 February 2019

Capital doesn’t flow to developing countries as much as economic theory suggests it should, and this might imply that capital is misallocated across nations. This column argues that once public capital is removed from the equation, the evidence shows that private capital is allocated remarkably efficiently across nations. It also suggests that the inefficiencies related to the allocation of public capital across countries can be significant and much larger than those related to private capital. 

Pedro Bento, Diego Restuccia, 22 October 2018

One way to adjudicate among existing productivity theories for why productivity varies across countries is to examine differences in average establishment size. Using new data covering firms in both manufacturing and services in 127 countries, this column shows that average establishment size increases with the level of development across countries, but the ratio of size between manufacturing and services does not vary systematically with income per capita. Misallocation is therefore an important driver of establishment size and aggregate productivity differences between rich and poor countries.

Fabiano Schivardi, Enrico Sette, Guido Tabellini, 18 July 2017

There is a widespread perception that under-capitalised banks can prolong crises by misallocating credit to weaker firms and restraining credit to healthy borrowers. This column explores the extent and consequences of credit misallocation in Italy during and after the Eurozone Crisis. Bank undercapitalisation may have been costly in terms of misallocation of capital and productive efficiency in the medium term due to the higher exit of healthy firms, but it had at best a limited role in aggravating the recession induced by the Eurozone Crisis.

Amit Khandelwal, Shang-Jin Wei, Peter Schott, 02 December 2012

If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. This paper examines Chinese textile and clothing exports before and after the removal of externally imposed quotas. Both the surge in export volumes and the decline in prices after the quota removal are driven by net entry, implying that the pre-liberalisation quota allocation is not based on firm productivity. Removing this misallocation accounts for a substantial share of the overall productivity gains associated with the quota removal.

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