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Measuring Aggregate Productivity Growth Using Plant-Level Data

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  • Amil Petrin

    (University of Chicago)

  • James Levinsohn

    (University of Michigan)

Abstract

We define productivity growth as the change in welfare that arises from additional output holding primary inputs constant. Using this traditional growth-accounting definition, we show that gains may arise because of plant-level technology shocks, and, in imperfectly competitive settings, from the reallocation of inputs across plants with differing markups and/or shadow values of primary inputs. With plant-level data, the alternative and most popular definition of productivity growth looks at the difference in the first moments of the productivity distribution. We show that this definition adds an additional term to the growth-accounting measure, which has been called “reallocation.” We show there is a very weak relationship between the two indexes in almost every 3-digit manufacturing industry in both Chile from 1987-1996 and Colombia from 1981-1991 - 49 in total - primarily because this “reallocation” term is large and volatile. We explore the theoretical reasons for this sharp divergence, in the process uncovering a number of previously unnoticed and unattractive features of the first-moment definition. For example, it is not tethered to any theoretical model, it is sensitive to measured units, and it can report positive productivity growth when welfare has fallen.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers551-575/r552.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 552.

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Length: 42 pages
Date of creation: 2005
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Handle: RePEc:mie:wpaper:552

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Cited by:
  1. Stefano Federico & Gaetano Alfredo Minerva, 2008. "Outward FDI and Local Employment Growth in Italy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 295-324, July.
  2. Shuyun Li, 2011. "Costly external finance, reallocation, and aggregate productivity," Journal of Productivity Analysis, Springer, vol. 35(3), pages 181-195, June.
  3. Marc Melitz & Saso Polanec, 2013. "Dynamic Olley-Pakes Productivity Decomposition with Entry and Exit," Working Paper 33758, Harvard University OpenScholar.
  4. Robert Breunig & Marn-Heong Wong, 2008. "A Richer Understanding of Australia's Productivity Performance in the 1990s: Improved Estimates Based Upon Firm-Level Panel Data," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 157-176, 06.
  5. 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.
  6. Mark Wright & Guido Sandleris, 2011. "The Costs of Financial Crises: Resource Misallocation, Productivity and Welfare in the 2001 Argentine Crisis," 2011 Meeting Papers 900, Society for Economic Dynamics.
  7. Jagadeesh Sivadasan & Amil Petrin, 2007. "Job Security Does Affect Economic Efficiency, Theory, A New Statistic, and Evidence from Chile," 2007 Meeting Papers 183, Society for Economic Dynamics.
  8. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.

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