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Misallocation and manufacturing TFP in China and India

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  • Chang, Tai Hsieh
  • Peter, J- Klenow

Abstract

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

Suggested Citation

  • Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007.
    • Handle: RePEc:pra:mprapa:35084
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    Keywords

    India; China; Economy;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • C0 - Mathematical and Quantitative Methods - - General
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • D3 - Microeconomics - - Distribution
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • B0 - Schools of Economic Thought and Methodology - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D1 - Microeconomics - - Household Behavior
    • A10 - General Economics and Teaching - - General Economics - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • D0 - Microeconomics - - General
    • A30 - General Economics and Teaching - - Multisubject Collective Works - - - General
    • A3 - General Economics and Teaching - - Multisubject Collective Works
    • F1 - International Economics - - Trade

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