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Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China

Author

Listed:
  • Tasso Adamopoulos
  • Loren Brandt
  • Jessica Leight
  • Diego Restuccia

Abstract

We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.

Suggested Citation

  • Tasso Adamopoulos & Loren Brandt & Jessica Leight & Diego Restuccia, 2017. "Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China," Working Papers tecipa-574, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-574
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    References listed on IDEAS

    as
    1. Tasso Adamopoulos & Diego Restuccia, 2014. "The Size Distribution of Farms and International Productivity Differences," American Economic Review, American Economic Association, vol. 104(6), pages 1667-1697, June.
    2. Raul Santaeulalia-Llopis & Diego Restuccia, 2014. "Land Misallocation and Productivity," 2014 Meeting Papers 1314, Society for Economic Dynamics.
    3. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2013. "Factor Market Distortions Across Time, Space, and Sectors in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 39-58, January.
    4. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    5. repec:aea:jecper:v:31:y:2017:i:3:p:151-74 is not listed on IDEAS
    6. Dwayne Benjamin & Loren Brandt, 2002. "Property rights, labour markets, and efficiency in a transition economy: the case of rural China," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 689-716, November.
    7. Trevor Tombe & Xiaodong Zhu, 2015. "Trade, Migration and Productivity: A Quantitative Analysis of China," Working Papers tecipa-542, University of Toronto, Department of Economics.
    8. Diego Restuccia & Tasso Adamopoulos, 2012. "Land Reform and Productivity: A Quantitative Analysis with Micro Data," 2012 Meeting Papers 1083, Society for Economic Dynamics.
    9. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    10. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    11. McMillan, John & Whalley, John & Zhu, Lijing, 1989. "The Impact of China's Economic Reforms on Agricultural Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 781-807, August.
    12. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    13. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
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    17. Chaoran Chen, 2017. "Untitled Land, Occupational Choice, and Agricultural Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 91-121, October.
    18. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
    19. Charles Gottlieb & Jan Grobovsek, 2015. "Communal Land and Agricultural Productivity," 2015 Meeting Papers 1513, Society for Economic Dynamics.
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    Citations

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    Cited by:

    1. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    2. Chaoran Chen, 2017. "Untitled Land, Occupational Choice, and Agricultural Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 91-121, October.
    3. Raul Santaeulalia-Llopis & Diego Restuccia, 2014. "Land Misallocation and Productivity," 2014 Meeting Papers 1314, Society for Economic Dynamics.
    4. A.V. Chari & Elaine Liu & Shing-Yi Wang & Yongxiang Wang, 2017. "Property Rights, Land Misallocation and Agricultural Efficiency in China," Working Papers 2017-091, Human Capital and Economic Opportunity Working Group.
    5. Chaoran Chen & Diego Restuccia & Raul Santaeulalia-Llopis, 2017. "The Effects of Land Markets on Resource Allocation and Agricultural Productivity," Working Papers tecipa-592, University of Toronto, Department of Economics.
    6. Stephen Ayerst, 2016. "Idiosyncratic Distortions and Technology Adoption," Working Papers tecipa-571, University of Toronto, Department of Economics.
    7. Diego Restuccia, 2018. "Misallocation and Aggregate Productivity across Time and Space," Working Papers tecipa-608, University of Toronto, Department of Economics.
    8. Chaoran Chen, 2017. "Technology Adoption, Capital Deepening, and International Productivity Differences," Working Papers tecipa-584, University of Toronto, Department of Economics.
    9. Lorenzo Caliendo & Fernando Parro & Aleh Tsyvinski, 2017. "Distortions and the Structure of the World Economy," NBER Working Papers 23332, National Bureau of Economic Research, Inc.
    10. L Rachel Ngai & Christopher A Pissarides & Jin Wang, 2018. "China’s Mobility Barriers and Employment Allocations," Discussion Papers 1811, Centre for Macroeconomics (CFM).
    11. repec:nbr:nberch:13946 is not listed on IDEAS

    More about this item

    Keywords

    agriculture; misallocation; selection; productivity; China.;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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