Allocational efficiency in the Swedish economy across sectors and time

Abstract: Resource misallocation between firms can lower total factor productivity (TFP) in an economy. In this thesis I develop an approach to measuring the productivity impact from misallocation based on previous literature. Using Swedish firm-level data I estimate that the removal of factor market distortions could raise Swedish TFP by 37% and that misallocation has increased substantially in the Swedish economy over the last twenty years. A sectoral split shows this trend to be present across sectors and misallocation to move with business cycles. Additionally, I propose a new method for estimating misallocation across firms with different demand elasticities of substitution, which allows for a more comprehensive quantification of reallocative potential than previously possible.