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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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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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  1. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  2. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
  3. Chang-Tai Hsieh & Jonathan A. Parker, 2006. "Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom," NBER Working Papers 12104, National Bureau of Economic Research, Inc.
  4. Pablo Andrés Neumeyer & Guido Sandleris, 2010. "Understanding Productivity During the Argentine Crisis," Business School Working Papers 2010-04, Universidad Torcuato Di Tella.
  5. Xu Yi & Nezih Guner & Gustavo Ventura, 2005. "Macroeconomic Implications of Size Dependent Policies," 2005 Meeting Papers 530, Society for Economic Dynamics.
  6. Adriana Camacho & Emily Conover, 2010. "Misallocation and Productivity in Colombia's Manufacturing Industries," IDB Publications (Working Papers) 6783, Inter-American Development Bank.
  7. Francisco A. Gallego & Norman Loayza, 2000. "Financial Structure in Chile: Macroeconomic Developments and Microeconomic Effects," Econometric Society World Congress 2000 Contributed Papers 1115, Econometric Society.
  8. Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers 09-04, Center for Economic Studies, U.S. Census Bureau.
  9. Virgiliu Midrigan & Daniel Yi Xu, 2010. "Finance and Misallocation: Evidence from Plant-level Data," NBER Working Papers 15647, National Bureau of Economic Research, Inc.
  10. Francisco Buera & Benjamin Moll & Yongseok Shin, 2013. "Well-Intended Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 216-230, January.
  11. Lee E. Ohanian, 2010. "The Economic Crisis from a Neoclassical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 45-66, Fall.
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