Capital Dispersion and Productivity in Portugal During the Troika Period

Portugal has struggled economically since the beginning of the twenty-first century. One reason for this is the low productivity of the portuguese manufacturing sector, which is particularly punishing to a country in the context of the eurozone. Using data for manufacturing firms in Portugal between 2011 and 2019, I document a countercyclical movement of productivity losses from capital misallocation, the increased dispersion of labor since 2011, even with a low and steady dispersion of the marginal product of labor, and the very high dispersion of capital and its marginal product. Using the same model as in Gopinath et al. (2017), even under a similar setting of falling real interest rate, I find evidence pointing the problems of productivity in Portugal away from being purely related with financial frictions, and provide markups and competition as a potential avenue to complement an explanation to this phenomenon.