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Explaining Reallocation's Apparent Negative Contribution to Growth

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  • Mitsukuni Nishida
  • Amil Petrin
  • Sašo Polanec

Abstract

We explain a puzzle from two recent meta-analyses that cover 25 countries and claim to show that inputs systematically move from higher- value to lower-value activities despite strong aggregate labor productivity growth (ALP). These papers use variants of the Baily, Hulten and Campbell ( 1992) decomposition of ALP to show that the reallocation covariance term is negative in all but two countries and the reallocation between term is negative in nine countries and weakly positive in most others. We decompose ALP using three micro-level data sets from Chile, Colombia and Slovenia and show the same puzzle holds. We show that the ALP between term can be decomposed into a term related to reallocation and a term related to a change in the total number of firms, the latter of which often works to reduce the total between term in our data. We also show these ALP patterns can arise because of heterogeneity in labor and capital, unobserved output prices or capacity utilization, but controlling for them only marginally helps to explain away the ALP reallocation puzzles in our micro-level data sets. We show that there is no puzzle when one decompose aggregate productivity growth in terms of National Accounts, as inputs in the aggregate move from low to high value activities in 36 of our 39 country-year observations. We conclude that there is a fundamental difference in reallocation measured by the ALP decomposition and that measured by the decomposition of National Accounts growth.

Suggested Citation

  • Mitsukuni Nishida & Amil Petrin & Sašo Polanec, 2011. "Explaining Reallocation's Apparent Negative Contribution to Growth," LICOS Discussion Papers 29911, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:29911
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp299.pdf
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    References listed on IDEAS

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    1. De Loecker, Jan & Konings, Jozef, 2006. "Job reallocation and productivity growth in a post-socialist economy: Evidence from Slovenian manufacturing," European Journal of Political Economy, Elsevier, vol. 22(2), pages 388-408, June.
    2. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    3. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," IZA Discussion Papers 1374, Institute for the Study of Labor (IZA).
    4. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    5. repec:idb:brikps:59978 is not listed on IDEAS
    6. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters,in: New Developments in Productivity Analysis, pages 303-372 National Bureau of Economic Research, Inc.
    7. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    8. Amil Petrin & Jerome Reiter & Kirk White, 2011. "The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 3-26, January.
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    Cited by:

    1. Amil Petrin & James Levinsohn, 2005. "Measuring Aggregate Productivity Growth Using Plant-Level Data," Working Papers 552, Research Seminar in International Economics, University of Michigan.
    2. Hyeog Ug Kwon & Futoshi Narita & Machiko Narita, 2015. "Resource Reallocation and Zombie Lending in Japan in the 1990s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 709-732, October.
    3. Werner Hölzl, 2012. "Mobility Barriers and the Speed of Market Selection," WIFO Working Papers 437, WIFO.
    4. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo Group Munich.
    5. Werner Hölzl, 2015. "Sunk costs and the speed of market selection," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 323-344, April.

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