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Misallocation and Manufacturing TFP in China and India

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  • Chang-Tai Hsieh

    (University of California, 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 narrowlydefined 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, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers 07-006, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:07-006
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    More about this item

    Keywords

    resource allocation; China; India; total factor productivity; manufacturing;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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