Data and Code for: Micro-level Misallocation and Selection

How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, micro-frictions can induce extensive-margin misallocation among firms: too many unproductive firms are active (Zombies) and too many productive firms are inactive (Shadows). Therefore, the same set of measured distortions potentially induces much larger aggregate productivity losses, as the composition of firms is shifted towards unproductive active firms. I develop and calibrate a model with plant-level micro-data for Indonesia to quantify aggregate welfare in the presence of extensive margin misallocation. My estimates show that selection can magnify aggregate TFP losses from micro-distortions by over 40%, compared to existing estimates. Realistic values of measurement error even increase the relative importance of extensive margin misallocation.