Following the introduction of the euro in 1999, countries in the South experienced large capital inflows and low productivity. We use data for manufacturing firms in Spain to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor across firms, and a significant increase in productivity losses from misallocation over time. We develop a model of heterogeneous firms facing financial frictions and investment adjustment costs.
Capital Allocation and Productivity in South EuropeGita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis and Carolina Villegas-Sanchez ,
NBER Working Paper