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Misallocation and manufacturing TFP in Ecuador: formal, semi-formal and informal firms

Author

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  • Rafaela Bastidas

    (Pontificia Universidad Católica del Ecuador
    Université Grenoble Alpes)

  • Nicolás Acosta

    (Pontificia Universidad Católica del Ecuador
    Georgetown University)

Abstract

Resource misallocation can lower the aggregate total factor productivity (TFP). We use micro-data on manufacturing establishments from the Instituto Ecuatoriano de Estadística y Censos to quantify the differences in productivity and diagnose the efficiency in the allocation of resources between formal and informal firms in the Ecuadorian in the manufacturing sector. We use the model proposed by Hsieh and Klenow (Q J Econ 124(4):1403–1448, 2009) to find informal firms have lower physical productivity than formal firms. We also found formal firms have a restricted growth due to capital and output distortions. These results indicate the existence of an inefficient allocation of resources between firms. By reallocating resources to equalize marginal productivity in the manufacturing sector, we calculate TFP gains of 80% in 2002 and 69% in 2015.

Suggested Citation

  • Rafaela Bastidas & Nicolás Acosta, 2019. "Misallocation and manufacturing TFP in Ecuador: formal, semi-formal and informal firms," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-29, December.
    • Handle: RePEc:spr:jecstr:v:8:y:2019:i:1:d:10.1186_s40008-019-0147-1
    DOI: 10.1186/s40008-019-0147-1
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    Cited by:

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    2. Paul, Saumik & Raju, Dhushyanth, 2021. "Barriers to Growth-Enhancing Structural Transformation: The Role of Subnational Differences in Intersectoral Productivity Gaps," IZA Discussion Papers 14407, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Total factor productivity; Informality; Distortions; Reallocation of resources; Production factors; Ecuador;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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