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Exploring Reallocation's Apparent Weak Contribution to Growth

  • Mitsukuni Nishida
  • Amil Petrin
  • Sašo Polanec

Two recent meta-analyses use variants of the Baily, Hulten, and Campbell (1992) (BHC) decompositions to ask whether recent robust growth in Aggregate Labor Productivity (ALP) across twenty-five countries is due to lower barriers to input reallocation. They find weak gains from measured reallocation and strong within-plant productivity gains. We show these findings may be because BHC indices decompose ALP growth using plant-level output-per-labor (OL) as a proxy for the marginal product of labor and changes in OL as a proxy for changes in plant-level productivity. We provide simple examples to show that 1) reallocation growth from labor should track marginal changes in labor weighted by the marginal product of labor, 2) BHC reallocation growth can be positively correlated, negatively correlated, or uncorrelated with actual growth arising from the reallocation of inputs, and that 3) BHC indices can mistake growth from reallocation as growth from productivity, principally because OL is neither a perfect index of marginal products nor plant-level productivity. We then turn to micro-level data from Chile, Colombia, and Slovenia, and we find for the first two that BHC indices report weak or negative growth from labor reallocation. Using the reallocation definition based on marginal products we find a positive and robust role for labor reallocation in all three countries and a reduced role of plant-level technical efficiency in growth. We close by exploring potential corrections to the BHC decompositions but here we have limited success.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19012.

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Date of creation: May 2013
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Publication status: published as Mitsukuni Nishida & Amil Petrin & Sašo Polanec, 2014. "Exploring reallocation’s apparent weak contribution to growth," Journal of Productivity Analysis, Springer, vol. 42(2), pages 187-210, October.
Handle: RePEc:nbr:nberwo:19012
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  1. Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
  2. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers tecipa-283, University of Toronto, Department of Economics.
  3. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," NBER Working Papers 13290, National Bureau of Economic Research, Inc.
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  8. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
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  10. Amil Petrin & T. Kirk White & Jerome P. Reiter, 2011. "The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth," NBER Working Papers 16700, National Bureau of Economic Research, Inc.
  11. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
  12. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo Group Munich.
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  19. repec:idb:brikps:59978 is not listed on IDEAS
  20. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  21. repec:dgr:rugggd:gd-121 is not listed on IDEAS
  22. Bartelsman, Eric & Haltiwanger, John & Scarpetta, Stefano, 2010. "Cross-country and within-country differences in the business climate," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 368-371, July.
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