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Misallocation and the recovery of manufacturing TFP after a financial crisis

Author

Listed:
  • Kaiji Chen

    () (Emory University, Department of Economics)

  • Alfonso Irarrazabal

    () (Norges Bank (Central Bank of Norway))

Abstract

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.

Suggested Citation

  • Kaiji Chen & Alfonso Irarrazabal, 2013. "Misallocation and the recovery of manufacturing TFP after a financial crisis," Working Paper 2013/01, Norges Bank.
  • Handle: RePEc:bno:worpap:2013_01
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2013/WP-201301/
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    References listed on IDEAS

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    1. Christian Daude & Eduardo Fernández-Arias, 2010. "On the Role of Productivity and Factor Accumulation in Economic Development in Latin America and the Caribbean," OECD Development Centre Working Papers 290, OECD Publishing.
    2. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    3. Chang-Tai Hsieh & Jonathan A. Parker, 2007. "Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2007), pages 1-53, August.
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    6. Francisco Gallego Y. & Norman Loayza., 2000. "Financial Structure in Chile: Macroeconomic Developments and Microeconomic Effects," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(2), pages 5-30, August.
    7. 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.
    8. Andres Fernandez & Felipe Meza, 2015. "Informal Employment and Business Cycles in Emerging Economies: The Case of Mexico," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 381-405, April.
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    Cited by:

    1. Siwapong Dheera-Aumpon, 2014. "Misallocation and manufacturing TFP in Thailand," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 28(2), pages 63-76, November.
    2. Lee E. Ohanian, 2016. "The Great Recession in the Shadow of the Great Depression: A Review Essay on “Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History”," NBER Working Papers 22239, National Bureau of Economic Research, Inc.
    3. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    4. Kapelko, Magdalena & Oude Lansink, Alfons & Stefanou, Spiro, 2014. "The Impact of the 2008 Economic Crisis on Dynamic Productivity Growth of the Spanish Food Manufacturing Industry. An Impulse Response Analysis," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182769, European Association of Agricultural Economists.
    5. Dias, Daniel A. & Robalo Marques, Carlos & Richmond, Christine, 2016. "Misallocation and productivity in the lead up to the Eurozone crisis," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 46-70.
    6. Ryzhenkov, Mykola, 2016. "Resource misallocation and manufacturing productivity: The case of Ukraine," Journal of Comparative Economics, Elsevier, vol. 44(1), pages 41-55.

    More about this item

    Keywords

    Misallocation; TFP; Chile;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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