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Misallocation and Manufacturing TFP in China and India

  • Chang-Tai Hsieh

    ()

    (University of California, 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 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.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-006.

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Date of creation: Jul 2007
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Handle: RePEc:sip:dpaper:07-006
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