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Misallocation and Manufacturing TFP in China and India

Author

Listed:
  • Chang-Tai Hsieh

    (UC Berkeley)

  • Peter J Klenow

    (Stanford University)

Abstract

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.

Suggested Citation

  • Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:121
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    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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