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Misallocation and Productivity in Costa Rica

Author

Listed:
  • Alonso Alfaro-Ureña

    (Economic Division, Central Bank of Costa Rica)

  • Jonathan Garita-Garita

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

This paper documents the effect of resource misallocation on Costa Rica's aggregate total factor productivity (TFP) using the Hsieh and Klenow (2009) methodology. The model suggests theoretical TFP gains of around 50%-60% for the overall economy and 10%- 15% for the manufacturing sector when the United States' level of efficiency is used as a benchmark. Evidence of a deterioration in the efficiency of resource allocation over the period 2005-2015 was not found, and misallocation seems to be greater in the agricultural sector. Small and large firms face advantageous output distortions relative to medium-sized firms, and small firms tend to also face disadvantageous capital distortions. Furthermore, our results also suggest that small firms have experienced higher growth in both capital and output wedges. Finally, distortions create incentives for firms to exit the market and thwart the entrance of new participants in an industry. ***Resumen: La presente investigación provee evidencia de los efectos de una ineficiente asignación de recursos sobre la productividad agregada de los factores en Costa Rica, utilizando la metodología de Hsieh y Klenow (2009). El modelo sugiere ganancias de 50% - 60% en productividad si se cumplieran las condiciones teóricas plenamente, mientras que dichas ganancias serían de alrededor de 10% - 15% si las empresas manufactureras alcanzaran el nivel de eficiencia de los Estados Unidos en 1997. Asimismo, la evidencia no muestra un deterioro en la asignación de recursos en el país y, además, señala que la asignación de recursos es más ineficiente en las empresas orientadas a la actividad agrícola. Las pequeñas y grandes empresas se favorecen por distorsiones de producto ventajosas, mientras que las pequeñas enfrentan distorsiones desfavorables de capital. La evidencia también sugiere que las empresas pequeñas experimentaron un crecimiento más acentuado en ambas distorsiones. Finalmente, las distorsiones incentivan la salida de las empresas y se encuentran negativamente relacionadas con la proporción de nuevos participantes en la industria.

Suggested Citation

  • Alonso Alfaro-Ureña & Jonathan Garita-Garita, 2019. "Misallocation and Productivity in Costa Rica," Documentos de Trabajo 1703, Banco Central de Costa Rica.
    • Handle: RePEc:apk:doctra:1703
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/114
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    References listed on IDEAS

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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