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Growth accounting with misallocation: Or, doing less with more in Singapore

  • John Fernald
  • Brent Neiman

We derive aggregate growth-accounting implications for a two-sector economy with heterogeneous capital subsidies and monopoly power. In this economy, measures of total factor productivity (TFP) growth in terms of quantities (the primal) and real factor prices (the dual) can diverge from each other as well as from true technology growth. These distortions potentially give rise to dynamic reallocation effects that imply that change in technology needs to be measured from the bottom up rather than the top down. We show an example, for Singapore, of how incomplete data can be used to obtain estimates of aggregate and sectoral technology growth as well as reallocation effects. We also apply our framework to reconcile divergent TFP estimates in Singapore and to resolve other empirical puzzles regarding Asian development.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2010-18.

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Date of creation: 2010
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Handle: RePEc:fip:fedfwp:2010-18
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