Misallocation and the Recovery of Manufacturing TFP after a Financial Crisis

36 Pages Posted: 23 May 2013

See all articles by Kaiji Chen

Kaiji Chen

Emory University - Department of Economics; Federal Reserve Bank of Atlanta

Alfonso A. Irarrazabal

New York University (NYU) - Department of Economics

Date Written: January 31, 2013

Abstract

The Chilean economy experienced a decade of sustained growth in aggregate out-put and productivity after the 1982 financial crisis. This paper analyzes the effects of resource misallocation on total factor productivity (TFP) of the manufacturing sector by applying the methodology of Hsieh and Klenow (2009) to the establishment data from the Chilean manufacturing census. We find that a reduction in resource misallocation accounts for about 46 percent of the growth in manufacturing TFP between 1983 and 1996. The improvement in allocative effciency, moreover, is essentially driven by a reduction in the cross-sectional dispersion of output distortion. In particular, a reduction in the least productive plants' output subsidies is the most important reason for the reduction in resource misallocation during this period.

Keywords: Misallocation, TFP, Chile

JEL Classification: O11, O47

Suggested Citation

Chen, Kaiji and Irarrazabal, Alfonso A., Misallocation and the Recovery of Manufacturing TFP after a Financial Crisis (January 31, 2013). Norges Bank Working Paper 2013/01, Available at SSRN: https://ssrn.com/abstract=2268525 or http://dx.doi.org/10.2139/ssrn.2268525

Kaiji Chen (Contact Author)

Emory University - Department of Economics ( email )

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HOME PAGE: http://https://sites.google.com/site/chenkaiji/research

Federal Reserve Bank of Atlanta ( email )

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Alfonso A. Irarrazabal

New York University (NYU) - Department of Economics ( email )

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New York, NY 10011
United States

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