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Misallocation or Mismeasurement?

Author

Listed:
  • Mark Bils

    (U. of Rochester)

Abstract

Revenue per unit of inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation, which lowers aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error in revenue and inputs. Applying our correction to U.S. manufacturing micro data eliminates an otherwise mysterious sharp downward trend in allocative efficiency from 1976–2009. For Indian manufacturing from 1985–2011, meanwhile, we estimate that true marginal products were only one-half as dispersed as measured average products.

Suggested Citation

  • Mark Bils, 2017. "Misallocation or Mismeasurement?," 2017 Meeting Papers 715, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:715
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    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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