Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom
88 Pages Posted: 15 Nov 2018
Date Written: September 2018
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
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