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Productivity and Misallocation During a Crisis

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  • Ezra Oberfield

    (Federal Reserve Bank of Chicago)

Abstract

Measured total factor productivity often declines sharply during financial crises. In 1982, the Chilean manufacturing sector suffered a severe contraction in output, most of which can be accounted for a falling Solow residual. Using establishment data from the Chilean manufacturing census, I assess the contribution of misallocation to the drop in output. Using several measures, I find that the cross-sectional allocation of resources deteriorated during the crisis. To quantify the impact of this misallocation on aggregate measured TFP I develop a decomposition along the lines of Hsieh and Klenow (2009). The analysis allows for specifications that span two extremes: (i) all plants have identical factor intensities (ii) plants differ in factor intensities within each sector. While this raises difficult aggregation issues, I show the connection between changes in the extent of misallocation and changes in an aggregate Solow residual. Although the preliminary results are sensitive to the exact empirical specification, I find that increased misallocation had a substantial impact on aggregate total factor productivity during the crisis.

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File URL: http://www.economicdynamics.org/meetpapers/2011/paper_1328.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1328.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1328

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  1. Amil Petrin & Jagadeesh Sivadasan, 2013. "Estimating Lost Output from Allocative Inefficiency, with an Application to Chile and Firing Costs," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 286-301, March.
  2. Raphael Bergoeing & Andrés Hernando & Andrea Repetto, 2003. "Idiosyncratic Productivity Shocks and Plant-Level Heterogeneity," Documentos de Trabajo 173, Centro de Economía Aplicada, Universidad de Chile.
  3. 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.
  4. Virgiliu Midrigan & Daniel Yi Xu, 2010. "Finance and Misallocation: Evidence from Plant-level Data," NBER Working Papers 15647, National Bureau of Economic Research, Inc.
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Cited by:
  1. 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.

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