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Allocative efficiency and the productivity slowdown

Author

Listed:
  • Lin Shao
  • Rongsheng Tang

Abstract

This paper evaluates the contribution of cross-sector allocative efficiency to the productivity slowdown in the US during the 1970s and 2000s. We extend the framework of Oberfield (2013) to derive sufficient statistics for allocative efficiency and decompose aggregate productivity growth in a multi-sector economy with or without input-output linkages. We find approximately two-thirds of the productivity slowdown can be explained by the lack of improvement in allocative efficiency. Furthermore, data shows that increased sector-level volatility is associated with the deterioration of allocative efficiency.

Suggested Citation

  • Lin Shao & Rongsheng Tang, 2024. "Allocative efficiency and the productivity slowdown," BIS Working Papers 1185, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1185
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    More about this item

    Keywords

    productivity slowdown; allocative efficiency; volatility; adjustment costs;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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