Misallocation and Manufacturing TFP in China and India

60 Pages Posted: 4 Aug 2009

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: February 1, 2009

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 (February 1, 2009). US Census Bureau Center for Economic Studies Paper No. CES-WP- 09-04. Available at SSRN: https://ssrn.com/abstract=1442871 or http://dx.doi.org/10.2139/ssrn.1442871

Chang-Tai Hsieh (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter J. Klenow

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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