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Misallocation and Manufacturing TFP in China and India

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Chang-Tai Hsieh
Peter J. Klenow

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Abstract

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 30-50% in China and 40-60% in India.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13290.

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Date of creation: Aug 2007
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Handle: RePEc:nbr:nberwo:13290

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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