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Misallocation and Manufacturing TFP in China and India

  • Chang-Tai Hsieh
  • Peter J. 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13290.

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Date of creation: Aug 2007
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Publication status: published as Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1403-1448, November.
Handle: RePEc:nbr:nberwo:13290
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