Do Multi-Plant Firms Reduce Misallocation? Evidence from Canadian Manufacturing

Using Canadian plant-level data, this paper shows that, depending on the industry, the differences in the average plant-level productivity and cross-plant allocation of resources between multi-plant and single-plant firms account for 1 to 15 per cent of the industry-level TFP. A large part of this contribution stems from more efficient cross-plant allocation of resources, measured by the covariance between plant size and productivity, in the pool of plants in multi-plant firms compared to the pool of plants in single-plant firms. There is less dispersion in the marginal products of the inputs, and thus less misallocation, in industries in which multi-plant firms account for a larger share of output. The patterns found in the cross-plant distribution of productivity and size are also consistent with better allocative efficiency among plants in multi-plant firms than among plants in single-plant firms.