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Misallocation and Manufacturing TFP in China and India

  • Chang-Tai Hsieh
  • Peter Klenow

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 30-50% in China and 40-60% in India.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 09-04.

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Length: 60 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:cen:wpaper:09-04
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