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Productivity and Misallocation During a Crisis: Evidence from the Chilean Crisis of 1982

  • Ezra Oberfield

    (Federal Reserve Bank of Chicago)

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 by a falling Solow residual. This paper uses establishment data from the Chilean manufacturing census to examine the decline in measured TFP. To quantify the contribution of resource misallocation, I develop a measure of allocational efficiency along the lines of Hsieh & Klenow (2009) and derive the appropriate measure of aggregate productivity to which it should be compared. Across specifications, within-industry allocational efficiency either remained constant or improved in 1982, while a decline in between-industry allocational efficiency accounts for about one-third of the reduction in TFP. Industries more sensitive to domestic demand -- durables and industries with low exports -- experienced larger declines in measured TFP. This finding is consistent with large adjustment costs and underutilization of inputs. Reduced capital utilization played a substantial role, accounting for 25-50 percent of the decline in measured TFP. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.10.005
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 1 (January)
Pages: 100-119

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Handle: RePEc:red:issued:11-215
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