scholarly journals Trade, Productivity and (Mis)allocation

2020 ◽  
Vol 20 (163) ◽  
Author(s):  
Antoine Berthou ◽  
John Jong-Hyun Chung ◽  
Kalina Manova ◽  
Charlotte Sandoz
Keyword(s):  
Firm Heterogeneity ◽  
Import Competition ◽  
Export Demand ◽  
Aggregate Productivity ◽  
Sufficient Statistic ◽  
Large Aggregate ◽  
Resource Misallocation ◽  
Exogenous Shocks ◽  
Potential Resource ◽  
Productivity Gains

We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse; (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity; (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.

IS RESOURCE MISALLOCATION LEADING TO PRODUCTIVITY GAPS IN MALAYSIA’S MANUFACTURING SECTOR?

2020 ◽  
Vol 65 (05) ◽  
pp. 1213-1235
Author(s):  
LAY LIAN CHUAH ◽  
NORMAN V. LOAYZA ◽  
HA NGUYEN
Keyword(s):  
Total Factor Productivity ◽  
Manufacturing Sector ◽  
Aggregate Productivity ◽  
Factor Productivity ◽  
Gross Domestic Product Growth ◽  
Large Aggregate ◽  
High Productivity ◽  
Resource Misallocation ◽  
Productivity Gains ◽  
Reallocation Of Resources

The reallocation of resources from low- to high-productivity firms can generate large aggregate productivity gains. The paper uses data from the Malaysian manufacturing censuses of 2005 and 2010 to measure the country’s hypothetical productivity gains if all misallocation within industries are removed. Comparing the results across the two census waves, we conclude that efficiency gaps (that is, the degree of misallocation) in Malaysia have narrowed by one-fifth. The efficiency gaps, however, appear to be over 40%, indicating a substantial room for improvement. This is important, particularly if total factor productivity growth is expected to support future economic growth. The analysis in this paper accounts only for resource misallocation within sectors. There may be other, possibly large, resource misallocation across sectors. Closing those gaps could boost total factor productivity and gross domestic product growth even further.

Creating Productive Jobs in East European Transition Economies: a Synthesis of Firm-Level Studies

2008 ◽  
Vol 204 ◽  
pp. 108-125 ◽  
Author(s):  
J. David Brown ◽  
John S. Earle
Keyword(s):  
Labour Market ◽  
Transition Economies ◽  
Market Reform ◽  
Aggregate Productivity ◽  
Firm Level ◽  
East European ◽  
Job Reallocation ◽  
Firm Turnover ◽  
Market Liberalisation ◽  
Productivity Gains

The challenge for labour market policy in the new member states and other transition economies of Eastern Europe has been to redress the sharp drops in employment and rises in unemployment in a way that fosters the creation of productive jobs. This paper first documents the magnitude and productivity of job and worker reallocation. It then investigates the effects of privatisation, product and labour market liberalisation, and obstacles to growth in the new private sector on reallocation and its productivity in Hungary, Romania, Russia, and Ukraine. We find that market reform has resulted in a large increase in the pace of job reallocation, particularly that occurring between sectors and via firm turnover. Unlike under central planning, the job reallocation during the transition has contributed significantly to aggregate productivity growth. Privatisation has not only stimulated intrasectoral job reallocation, but the reallocation is more productive than that among remaining state firms. The estimated effect of privatisation on firm productivity is usually positive, but it varies considerably across countries. The productivity gains from privatisation have generally not come at the expense of workers, but are associated rather with increased wages and employment.

scholarly journals Institutional Quality, FDI, and Productivity: A Theoretical Analysis

2020 ◽  
Vol 12 (17) ◽  
pp. 7057 ◽  
Author(s):  
Jaewon Jung
Keyword(s):  
Emerging Economies ◽  
Multinational Firms ◽  
Institutional Quality ◽  
Aggregate Productivity ◽  
Fdi Inflows ◽  
Pervasive Technology ◽  
Good Market ◽  
Advanced Economies ◽  
Productivity Gains ◽  
Technology Upgrading

While many important links between institutional quality and foreign direct investment (FDI) inflows and/or between inward FDI and economic development through productivity growth have been uncovered, the full links between emerging and advanced economies are not yet well understood. This paper develops a model of FDI with an explicit distinction between the two economies where domestic and multinational firms using different technologies compete on the final good market and highlights the institutional quality–FDI–productivity link within a unified theoretical general equilibrium framework. We show that an improvement of institutional quality in the emerging economies induces pervasive technology-upgrading effects in the advanced economies, which generates aggregate productivity gains.

scholarly journals Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

2010 ◽  
Vol 2 (1) ◽  
pp. 131-168 ◽  
Author(s):  
François Gourio ◽  
Jianjun Miao
Keyword(s):  
Capital Accumulation ◽  
Firm Heterogeneity ◽  
Percent Level ◽  
Capital Gains ◽  
Tax Rates ◽  
Aggregate Productivity ◽  
Capital Gains Tax ◽  
Productivity Shocks ◽  
Long Run ◽  
Dividend Tax

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent. (JEL D21, E22, E62, G32, G35, H25, H32)

Selection and Market Reallocation: Productivity Gains from Multinational Production

2018 ◽  
Vol 10 (2) ◽  
pp. 1-38 ◽  
Author(s):  
Laura Alfaro ◽  
Maggie X. Chen
Keyword(s):  
Economic Research ◽  
Policy Debate ◽  
Aggregate Productivity ◽  
Productivity Improvement ◽  
Firm Level ◽  
Domestic Firms ◽  
Multinational Production ◽  
Substantial Bias ◽  
Productivity Gains ◽  
Research And Policy

Assessing productivity gains from multinational production has been a vital topic of economic research and policy debate. Positive productivity gains are often attributed to productivity spillovers; however, an alternative, much less emphasized channel is selection and market reallocation, whereby competition leads to factor and revenue reallocation within and between domestic firms and exits of the least productive firms. We investigate the roles of these different mechanisms in determining aggregate-productivity gains using a unifying framework that explores the mechanisms' distinct predictions on the distributions of domestic firms: within-firm productivity improvement shifts rightward or reshapes the productivity distribution, while selection and market reallocation move the revenue and employment distributions leftward and raise left truncations. Using a rich cross-country firm-level panel dataset, we find significant evidence of both mechanisms and effects of competition in product, technology, and labor space. However, selection and market reallocation account for the majority of aggregate-productivity gains, suggesting ignoring this channel could lead to substantial bias in understanding the nature of productivity gains from multinational production. (JEL D22, D24, F14, F23, G32, O47)

Capital Reallocation

2018 ◽  
Vol 10 (1) ◽  
pp. 361-386 ◽  
Author(s):  
Andrea L. Eisfeldt ◽  
Yu Shi
Keyword(s):  
United States ◽  
Business Cycles ◽  
Financial Frictions ◽  
The United States ◽  
Future Research ◽  
Aggregate Productivity ◽  
Stylized Facts ◽  
Resource Misallocation ◽  
Capital Reallocation

Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical or even countercyclical. This article reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of stylized facts about capital reallocation for the United States and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions and on resource misallocation and aggregate productivity. Throughout, we provide directions for future research.

scholarly journals Tax efficiency in a model of endogenous markups

SERIEs ◽  
2019 ◽  
Vol 10 (3-4) ◽  
pp. 401-418
Author(s):  
Esra Durceylan
Keyword(s):  
Firm Heterogeneity ◽  
Consumer Preferences ◽  
Consumer Surplus ◽  
Consumer Welfare ◽  
Tax Revenue ◽  
Aggregate Productivity ◽  
Ad Valorem Tax ◽  
Unit Taxes ◽  
Efficiency Comparison ◽  
Ad Valorem

Abstract Efficiency comparison of ad valorem and unit taxes has been traditionally based on consumer welfare. However, if the tax instrument also affects the distribution of firms over their productivities, the policy maker may be concerned about the implications on aggregate productivity as well. This paper makes an efficiency comparison of ad valorem and unit taxes by allowing the distribution of firms to respond to changes in policy. First, I make an efficiency comparison in a model with monopolistically competitive firms that are homogenous with respect to their productivity levels. Consumer preferences exhibit love for variety and allow firms to adjust their markups. I find that ad valorem tax is more efficient. Allowing for firm heterogeneity overturns this result at high revenue requirements. As the tax rate increases, ad valorem tax causes excessive exit of firms which makes the market more competitive. Hence, few surviving firms price lower by decreasing their markups. Lower prices decrease the tax revenue collected. As a result under ad valorem tax regime, higher consumer surplus is dominated by lower tax revenue. On the other hand, production is concentrated among relatively more productive firms. Thus, aggregate productivity is higher under ad valorem tax regime.

Misallocation and reallocation of resources in Vietnamese manufacturing firms

2020 ◽  
Vol 47 (7) ◽  
pp. 1605-1627
Author(s):  
Phuong Thi Nguyen ◽  
Minh Khac Nguyen
Keyword(s):  
Market Share ◽  
Choice Model ◽  
Manufacturing Sector ◽  
Productivity Change ◽  
Aggregate Productivity ◽  
Firm Level ◽  
Content Type ◽  
Resource Misallocation ◽  
Productivity Decomposition ◽  
Exit Decisions

PurposeThis research identifies the level of misallocation in Vietnamese manufacturing sector for the period 2000–2015. Meltiz and Polanec dynamic productivity decomposition is used to compare the relative productivity contributions from surviving, entering and exiting firms to aggregate productivity change by the type of ownership. Heckman's two-step model is used to examine the effect of misallocation and industry- and firm-level factors on entry or exit decision and market share of firms in Vietnamese manufacturing sector.Design/methodology/approachThe level of misallocation and efficiency gains in total factor productivity (TFP) are assessed using Hsieh and Klenow (2009) productivity decomposition framework for the period 2000–2015. The dynamic productivity decomposition of Meltiz and Polanec (2015) is used to compare the relative contributions from surviving, entering and exiting firms to aggregate productivity change. The effects of misallocation and other factors on entry or exit decisions and market share of firms are determined by using Heckman choice model.FindingsThe results indicate three main points. Firstly, resource misallocation is found to be highest among state-owned enterprise (SOEs) and low technology industries. TFP is found to 81.2% greater if there is no resource misallocation among firms. Secondly, the aggregate productivity change for the entering, exiting and surviving firms is 35% due to productivity reallocation among three groups. Finally, the decision of entry or exit as well as the market share of firms are influenced by misallocation and industry- and firm-level factors such as Vietnam's WTO entry, tax policy, financial frictions, industrial concentration, technology gap, capital intensity, human capital, scale of firm, time entry and FDI spillovers. The result finds the higher misallocation level is, the lower the probability and market share for a new firm to enter in the industry is.Research limitations/implicationsThe main limitation of the study is that the market is assumed perfectly competitive and the method has only decomposed misallocation of resources to those arising from output and capital distortions. The results of Heckman choice model only clarify on the sub-sample of state-owned enterprises and low technology firms.Originality/valueThe focus of many previous research papers on resource misallocation was generally to look at the level of misallocation in developed countries. However, knowledge about the effect of misallocation and other factors on entry or exit decisions and market share of firms is limited, particularly in the context of developing countries. This paper clarifies the level of misallocation in Vietnamese manufacturing sector and the effect of misallocation and other factors on entry or exit decisions and market share of firms.

scholarly journals Information, Misallocation, and Aggregate Productivity *

2016 ◽  
Vol 131 (2) ◽  
pp. 943-1005 ◽  
Author(s):  
Joel M. David ◽  
Hugo A. Hopenhayn ◽  
Venky Venkateswaran
Keyword(s):  
United States ◽  
Information Structure ◽  
Imperfect Information ◽  
The United States ◽  
Aggregate Productivity ◽  
Firm Level ◽  
Resource Misallocation ◽  
China And India ◽  
Noisy Information ◽  
Internal Sources

Abstract We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Even when only capital is chosen under imperfect information, applying this methodology to data from the United States, China, and India reveals substantial losses in productivity and output due to the informational friction. Our estimates for these losses range from 7% to 10% for productivity and 10% to 14% for output in China and India, and are smaller, though still significant, in the United States. Losses are substantially higher when labor decisions are also made under imperfect information. We find that firms turn primarily to internal sources for information; learning from financial markets contributes little, even in the United States.

scholarly journals Taxing the Good? Distortions, Misallocation, and Productivity in Sub-Saharan Africa

2019 ◽  
Vol 34 (1) ◽  
pp. 75-100 ◽  
Author(s):  
Xavier Cirera ◽  
Roberto Fattal-Jaef ◽  
Hibret Maemir
Keyword(s):  
Census Data ◽  
Value Added ◽  
Sub Saharan Africa ◽  
Aggregate Productivity ◽  
Firm Level ◽  
High Productivity ◽  
Resource Misallocation ◽  
Sub Saharan ◽  
Type Data ◽  
Marginal Returns

Abstract This paper uses comprehensive and comparable firm-level manufacturing censuses from four Sub-Saharan African (SSA) countries to examine the extent, costs, and nature of within-industry resource misallocation between heterogeneous production units. This paper finds evidence of severe misallocation in which resources are diverted away from high-productivity firms towards low-productivity ones, although the magnitude differs across countries. Estimated aggregate productivity gains from the hypothetical equalization of marginal returns range from 30 percent in Côte d’Ivoire to 160 percent in Kenya. The magnitude of reallocation gains appears considerably lower when performing the same counterfactual exercise based on the World Bank Enterprise Surveys once the value-added shares of industries are adjusted using the census data. This suggests that linking firm-level survey data to aggregate outcomes requires census-type data or sampling methods that take the true structure of production into account.

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