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The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth

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  • Amil Petrin

    (University of Minnesota)

  • Jerome Reiter

    (Duke University)

  • Kirk White

    (U.S. Department of Agriculture)

Abstract

We build up from the plant level an aggregate(d) Solow residual by estimating every U.S. manufacturing plant's contribution to the change in aggregate final demand between 1976 and 1996. Our framework uses the Petrin and Levinsohn (2010) definition of aggregate productivity growth, which aggregates plant-level changes to changes in aggregate final demand in the presence of imperfect competition and other distortions and frictions. We decompose these contributions into plant-level resource reallocations and plant-level technical efficiency changes while allowing in the estimation for 459 different production technologies, one for each 4-digit SIC code. On average we find positive aggregate productivity growth of 2.2% in this sector during this period of declining share in U.S. GDP. We find that aggregate reallocation made a larger contribution to growth than aggregate technical efficiency. Our estimates of the contribution of reallocation range from 1.7% to 2.1% per year, while our estimates of the average contribution of aggregate technical efficiency growth range from 0.2% to 0.6% per year. In terms of cyclicality, the aggregate technical efficiency component has a standard deviation that is roughly 50% to 100% larger than that of aggregate total reallocation, pointing to an important role for technical efficiency in macroeconomic fluctuations. Aggregate reallocation is negative in only 3 of the 20 years of our sample, suggesting that the movement of inputs to more highly valued activities on average plays a stabilizing role in manufacturing growth. Our results have implications for both the theoretical literature on growth and alternative indexes of aggregate productivity growth based only on technical efficiency. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 1 (January)
Pages: 3-26

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Handle: RePEc:red:issued:09-247

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Keywords: Macroeconomic fluctuations; Aggregate productivity growth; Reallocation; Technical efficiency;

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References

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  1. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  2. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
  3. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
  4. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  5. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers 07-006, Stanford Institute for Economic Policy Research.
  6. Susanto Basu & John G. Fernald, 1997. "Aggregate productivity and aggregate technology," International Finance Discussion Papers 593, Board of Governors of the Federal Reserve System (U.S.).
  7. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  8. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  9. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 511-18, October.
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Citations

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Cited by:
  1. Pete Klenow & Gunjan Sharma & Albert Bollard, 2011. "India's Mysterious Manufacturing Miracle," 2011 Meeting Papers 1176, Society for Economic Dynamics.
  2. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2009. "Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence," NBER Working Papers 15579, National Bureau of Economic Research, Inc.
  3. Arita, Shawn & Tanaka, Kiyoyasu, 2012. "Heterogeneous multinational firms and productivity gains from falling FDI barriers," IDE Discussion Papers 324, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  4. Silvio Contessi, 2010. "What happens when Wal-Mart comes to your country? multinational firms' entry, productivity, and inefficiency," Working Papers 2010-043, Federal Reserve Bank of St. Louis.
  5. Mitsukuni Nishida & Amil Petrin & Sašo Polanec, 2011. "Estimating Explaining Reallocation's Apparent Negative Contribution to Growth," Economics Working Paper Archive 584, The Johns Hopkins University,Department of Economics.
  6. Van Reenen, John, 2011. "Does competition raise productivity through improving management quality?," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 306-316, May.
  7. Chugh, Sanjay K., 2013. "Costly external finance and labor market dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2882-2912.
  8. Mitsukuni Nishida & Amil Petrin & Sašo Polanec, 2013. "Exploring Reallocation’s Apparent Weak Contribution to Growth," NBER Working Papers 19012, National Bureau of Economic Research, Inc.
  9. Albert Bollard & Peter Klenow & Gunjan Sharma, 2012. "Online Appendix to "India's Mysterious Manufacturing Miracle"," Technical Appendices 11-75, Review of Economic Dynamics.
  10. Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
  11. Koetter, Michael, 2013. "Market structure and competition in German banking: Modules I and IV," Working Papers 06/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  12. Nicolas Ziebarth, 2013. "Are China and India Backwards? Evidence from the 19th Century U.S. Census of Manufactures," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 86-99, January.
  13. Nicolas Ziebarth, 2011. "Are China and India Backwards? Evidence from the 19th Century U.S. Census of Manufactures," 2011 Meeting Papers 138, Society for Economic Dynamics.
  14. Liu, Jing & Cao, Shutao, 2011. "Productivity growth and ownership change in China: 1998-2007," MPRA Paper 33275, University Library of Munich, Germany, revised 04 Sep 2011.
  15. González, Xulia & Miles-Touya, Daniel, 2012. "Labor market rigidities and economic efficiency: Evidence from Spain," Labour Economics, Elsevier, vol. 19(6), pages 833-845.
  16. Mitsukuni Nishida & Amil Petrin & T. Kirk White, 2013. "Are We Undercounting Reallocation's Contribution to Growth?," Working Papers 13-55, Center for Economic Studies, U.S. Census Bureau.
  17. Liu, Jing & Cao, Shutao, 2011. "Productivity growth and ownership change in China: 1998-2007," MPRA Paper 34601, University Library of Munich, Germany, revised 04 Sep 2011.

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