TY - JOUR
T1 - Misallocation and Productivity Slowdown over Two Decades
T2 - Evidence from Sri Lanka
AU - Kumari, Ranpati Dewage Thilini Sumudu
AU - Tang, Sam
AU - Chen, Shawn
AU - Li, Bei
PY - 2021
Y1 - 2021
N2 - We investigate the effect of misallocation induced by firm-specific distortions on aggregate productivity and long-run TFP growth. Using a new firm-level dataset from Sri Lanka's manufacturing surveys spanning over two decades and a standard model of misallocation , we show that when misallocation is eliminated, the aggregate manufacturing productivity could be boosted by 102% during 1994-2015. In addition, we find that the allocative efficiency exhibits a declining trend over time, and this rising misallocation could explain 55% of the manufacturing TFP growth slowdown in Sri Lanka. We further explore the underlying causes of the rising misallocation by quantitatively analysing the contributions of different types of firms and distortions in different markets. In the end, we qualitatively discuss potential fundamental sources in institutions and policies. Our results reveal that misallocation can be a mechanism underlying the growth slowdown of many emerging economies a decade after the liberalization reform since the late 1970s.
AB - We investigate the effect of misallocation induced by firm-specific distortions on aggregate productivity and long-run TFP growth. Using a new firm-level dataset from Sri Lanka's manufacturing surveys spanning over two decades and a standard model of misallocation , we show that when misallocation is eliminated, the aggregate manufacturing productivity could be boosted by 102% during 1994-2015. In addition, we find that the allocative efficiency exhibits a declining trend over time, and this rising misallocation could explain 55% of the manufacturing TFP growth slowdown in Sri Lanka. We further explore the underlying causes of the rising misallocation by quantitatively analysing the contributions of different types of firms and distortions in different markets. In the end, we qualitatively discuss potential fundamental sources in institutions and policies. Our results reveal that misallocation can be a mechanism underlying the growth slowdown of many emerging economies a decade after the liberalization reform since the late 1970s.
UR - http://www.scopus.com/inward/record.url?scp= 885104728008&partnerID=8YFLogxK
U2 - 10.1080/00036846.2021.1904111
DO - 10.1080/00036846.2021.1904111
M3 - Article
SN - 0003-6846
VL - 53
SP - 4417
EP - 4435
JO - Applied Economics
JF - Applied Economics
IS - 38
ER -