IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v101y2026ics1544612326005015.html

The impacts of sectoral distortions on aggregate total factor productivity

Author

Listed:
  • Lv, Chao
  • Zhu, Yan

Abstract

This study proposes a novel accounting framework to assess the impacts of sectoral distortions on aggregate total factor productivity (TFP). Based on a CES production network general equilibrium framework, this study analyzes an initially inefficient economy characterized by heterogeneous sectoral distortions. This framework decomposes the impacts of sectoral distortions on aggregate TFP into two effects: the direct reallocation effects caused by changes in distortions, and the indirect reallocation effects driven by distortion-induced changes in factor income shares. Using China’s input–output data over the period 2002–2020, the results demonstrate that the indirect effect serves as a countervailing force to the direct effect of a sectoral distortion change. Specifically, while an increase in a sectoral distortion reduces aggregate TFP through the direct reallocation channel, it increases aggregate TFP through the indirect reallocation channel. A decomposition of sectoral distortion changes’ contribution to aggregate TFP growth over the period reveals that the direct resource reallocation channel raises aggregate TFP by 13.3%, whereas the indirect resource reallocation channel lowers it by 16.0%, resulting in a net decline of 2.7% in aggregate TFP.

Suggested Citation

  • Lv, Chao & Zhu, Yan, 2026. "The impacts of sectoral distortions on aggregate total factor productivity," Finance Research Letters, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:finlet:v:101:y:2026:i:c:s1544612326005015
    DOI: 10.1016/j.frl.2026.109972
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612326005015
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2026.109972?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:101:y:2026:i:c:s1544612326005015. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.