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Sectoral Productivity Gaps and Aggregate Productivity

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  • Sinha Rishabh

    (The World Bank, 1818 H St NW, Washington, DC 20433, USA)

Abstract

The paper examines the aggregate impact of misallocation measured using gaps in labor productivity across sectors. A simple model of resource allocation is used to quantify the effect in which the gaps arise due to distortions in the form of asymmetrical taxes on hiring labor across sectors. From a development accounting approach, the gains from eliminating distortions are meager and are not consequential in accounting for cross-country variation in incomes. Nevertheless, the gains for some countries rival the growth that they have accumulated over several years. Of the 87 countries in the sample, the changes in distortions over time exert a net negative impact in 45 countries instead of providing tailwinds to growth. Changes in distortions account for just under 5.6% of the total growth when aiding growth. In turn, the output drag represents 3.4% of the actual growth on average for the sub-sample in which distortions yield a net negative effect. The move towards allocative efficiency bears a positive association with the quality of institutions.

Suggested Citation

  • Sinha Rishabh, 2021. "Sectoral Productivity Gaps and Aggregate Productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(1), pages 37-71, January.
    • Handle: RePEc:bpj:bejmac:v:21:y:2021:i:1:p:37-71:n:3
    DOI: 10.1515/bejm-2019-0176
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    Cited by:

    1. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications - Books, The World Bank Group, number 34015, December.

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    More about this item

    Keywords

    sectoral productivity gaps; misallocation; labor shares; aggregate productivity; agricultural productivity;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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