Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom

88 Pages Posted: 15 Nov 2018

See all articles by Yu Shi

Yu Shi

International Monetary Fund (IMF)

Date Written: September 2018

Abstract

This paper identifies a new mechanism leading to inefficiency in capital reallocation at theextensive margin when an economy experiences a sectoral boom. I argue that imperfectionsin the financial market and capital barriers to entry in the booming sector create amisallocation of managerial talent. Using comprehensive firm-level data from China, I firstprovide evidence that more productive firms reallocate capital to the booming real estatesector, and demonstrate that the pattern is likely driven by fewer financial constraints onthese firms. I then use a structural estimation to verify the talent misallocation. Finally, Icalibrate a dynamic model and find that the without the misallocation, the TFP growth in themanufacturing sector would have improved by 0.5% per year.

Keywords: Production, Asia and Pacific, Real estate boom, misallocation, aggregate productivity, Institutions and the Macroeconomy, Neoclassical, General, One, Two, and Multisector Growth Models, Housing Supply and Markets

JEL Classification: E02, E13, E22, E23, G32, O40, O41, R31

Suggested Citation

Shi, Yu, Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom (September 2018). IMF Working Paper No. 18/221, Available at SSRN: https://ssrn.com/abstract=3285218

Yu Shi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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