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A Trade-Based Misallocation Index


  • Orhun Sevinc


This paper, based on a model of trade in the presence of sectoral distortions, develops a one dimensional sectoral misallocation index. It estimates the index using product-level bilateral trade data at the sector-country-year level since 1962. The geographical distribution of the misallocation index suggests substantial within-region differences across countries and across time. Notably, a large and historical allocative efficiency gap exists across the West and the East of Europe, while the latter shows a remarkable progress in catching up. On the other hand, the substantial gap between the North and South America is highly persistent. The paper then investigates the negative association of misallocation to economic performance through multivariate regression analysis. The index of misallocation inversely and robustly predicts cross-country productivity differences, contains valuable information on top of factors of production, and outperforms measures of diversification, product sophistication, and openness when time invariant country characteristics are accounted for.

Suggested Citation

  • Orhun Sevinc, 2019. "A Trade-Based Misallocation Index," Working Papers 1918, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1918

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    Trade; Misallocation; Comparative advantage;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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