Description

We investigate the role of multi-product firms in shaping resource misallocation within production networks and its impact on aggregate total factor productivity (TFP) growth. Using administrative data on product transactions between all the for-mal Chilean firms, we provide evidence that demand shocks to one product affect the production of other products within the same firm, suggesting firms engage in joint production. We develop a framework to measure resource misallocation in pro-duction networks with joint production, deriving non-parametric sufficient statistics to quantify these effects. Applying the framework to Chile, we find that reallocation effects, considering joint production, explain 86% of observed aggregate TFP growth for the 2016-2022 period. Ignoring joint production leads to overestimating resource misallocation.