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Misallocation and Manufacturing TFP in China and India

  • Chang-Tai Hsieh

    (UC Berkeley)

  • Peter J Klenow

    (Stanford University)

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the extent of this misallocation in China and India compared to the U.S. in recent years. 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 25-40% in China and 50-60% in India.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 121.

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Date of creation: 2008
Handle: RePEc:red:sed008:121
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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