National Bank of Denmark working paper finds industry-level misallocation measures can overstate misallocation by up to 36 percentage points

The National Bank of Denmark published a working paper assessing how productivity dispersion is used to infer misallocation of production inputs, arguing that dispersion in revenue productivity within an industry is not necessarily evidence of misallocation when firms operate in different markets. Using ready-mixed concrete industry data, the paper quantifies how market-level differences can bias common industry-level misallocation metrics. The analysis estimates that industry-level measures overstate the degree of misallocation by 27 to 36 percentage points when revenue productivity dispersion reflects firms serving different markets rather than inefficient input allocation. The paper is issued as Working Paper No. 219 and, consistent with the series’ approach, represents ongoing research and the authors’ views rather than those of the National Bank of Denmark.