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CEP discussion paper

The productivity puzzle and misallocation: an Italian perspective


Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this \productivity puzzle" is the still short time span for which data can be analysed. An exception is Italy where productivity growth started to stagnate 25 years ago. Italy therefore offers an interesting case to investigate in search of broader lessons that may hold beyond local specific cities. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy's aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources between firms in sectors where technology is changing faster rather than between sectors with different speeds of technological change.


Sara Calligaris, Massimo Del Gatto, Fadi Hassan, Gianmarco I. P. Ottaviano and Fabiano Schivardi

11 December 2017     Paper Number CEPDP1520

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This CEP discussion paper is published under the centre's Trade programme.