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

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  • 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 within-village 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 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). Selection substantially amplifies the productivity effect of distortionary policies by affecting occupational choices that worsen average ability in agriculture.

Suggested Citation

  • Tasso Adamopoulos & Loren Brandt & Jessica Leight & Diego Restuccia, 2021. "Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China," Working Papers tecipa-707, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-707
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    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
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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