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Misallocation and the recovery of manufacturing TFP after a financial crisis

  • Kaiji Chen

    ()

    (Emory University, Department of Economics)

  • Alfonso Irarrazabal

    ()

    (Norges Bank (Central Bank of Norway))

The Chilean economy experienced a decade of sustained growth in aggregate out-put and productivity after the 1982 .nancial crisis. This paper analyzes the effects of resource misallocation on total factor productivity (TFP) of the manufacturing sector by applying the methodology of Hsieh and Klenow (2009) to the establishment data from the Chilean manufacturing census. We find that a reduction in resource misallocation accounts for about 46 percent of the growth in manufacturing TFP between 1983 and 1996. The improvement in allocative effciency, moreover, is essentially driven by a reduction in the cross-sectional dispersion of output distortion. In particular, a reduction in the least productive plants.output subsidies is the most important reason for the reduction in resource misallocation during this period.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2013/WP-201301/
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Paper provided by Norges Bank in its series Working Paper with number 2013/01.

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Length: 34 pages
Date of creation: 07 Jan 2013
Date of revision:
Handle: RePEc:bno:worpap:2013_01
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