Misallocation and Manufacturing TFP in China and India

61 Pages Posted: 9 Aug 2007 Last revised: 26 Oct 2022

See all articles by Chang-Tai Hsieh

Chang-Tai Hsieh

University of Chicago - Booth School of Business; University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2007

Abstract

Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the potential extent of misallocation in China and India compared to the U.S. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined 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 30-50% in China and 40-60% in India.

Suggested Citation

Hsieh, Chang-Tai and Klenow, Peter J., Misallocation and Manufacturing TFP in China and India (August 2007). NBER Working Paper No. w13290, Available at SSRN: https://ssrn.com/abstract=1005603

Chang-Tai Hsieh (Contact Author)

University of Chicago - Booth School of Business ( email )

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Peter J. Klenow

Stanford University - Department of Economics ( email )

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