TY - JOUR
T1 - Un-Incorporation and Conditional Misallocation
T2 - Firm-Level Evidence from Sri Lanka
AU - Kumari, Ranpati Dewage Thilini Sumudu
AU - Chen, Shawn Xiaoguang
AU - Tang, Sam Hak Kan
N1 - Funding Information:
The results and views enunciated in this paper are those of the authors alone and in no way represent those of the Central Bank of Sri Lanka. Authors acknowledge the support from The University of Western Australia, the Central Bank of Sri Lanka, and the Department of Census and Statistics of Sri Lanka. They appreciate the feedback from the participants in Australian Conference of Economists 2021 and in work-in-progress seminar series-2021 at The University of Western Australia. Authors also appreciate the insight given by Rodney Tyers, Kenneth Clements, Anu Rammohan, Missaka Warusawitharana and Nelson Perera. Authors are also grateful to the managing editor, Arpad Abraham, and two anonymous reviewers of this journal, for their constructive comments. Authors bear the responsibility for any remaining errors in the paper.
Publisher Copyright:
© 2023 Walter de Gruyter GmbH, Berlin/Boston.
PY - 2023/8/4
Y1 - 2023/8/4
N2 - Un-incorporated firms are usually found less productive than their incorporated counterparts. However, little is known about the misallocation conditional on firms' incorporation status and their productivity. This paper investigates the resource misallocation across un-incorporated firms and gauges the consequent aggregate productivity loss in comparison with their incorporated counterparts. We examine the question by using firm-level survey data from Sri Lanka's manufacturing sector for 2005-2017 that provide unique information about firms' corporation status. Our findings suggest that misallocation is more severe in unincorporated firms than in incorporated ones, leading to extra 42 % aggregate TFP loss to the former. By comparing the sources of misallocation between the two types of firms, we find capital is more misallocated relative to output and there is a stronger positive correlation between firm-specific distortion and productivity across the unincorporated firms. Our findings suggest that the un-incorporated firms suffer additional productivity loss at the aggregate level due to misallocation.
AB - Un-incorporated firms are usually found less productive than their incorporated counterparts. However, little is known about the misallocation conditional on firms' incorporation status and their productivity. This paper investigates the resource misallocation across un-incorporated firms and gauges the consequent aggregate productivity loss in comparison with their incorporated counterparts. We examine the question by using firm-level survey data from Sri Lanka's manufacturing sector for 2005-2017 that provide unique information about firms' corporation status. Our findings suggest that misallocation is more severe in unincorporated firms than in incorporated ones, leading to extra 42 % aggregate TFP loss to the former. By comparing the sources of misallocation between the two types of firms, we find capital is more misallocated relative to output and there is a stronger positive correlation between firm-specific distortion and productivity across the unincorporated firms. Our findings suggest that the un-incorporated firms suffer additional productivity loss at the aggregate level due to misallocation.
KW - firm-level distortion
KW - misallocation
KW - Sri Lanka
KW - total factor productivity
KW - unincorporated firm
UR - http://www.scopus.com/inward/record.url?scp=85167568981&partnerID=8YFLogxK
U2 - 10.1515/bejm-2022-0107
DO - 10.1515/bejm-2022-0107
M3 - Article
AN - SCOPUS:85167568981
SN - 2194-6116
VL - 23
SP - 999
EP - 1035
JO - B.E. Journal of Macroeconomics
JF - B.E. Journal of Macroeconomics
IS - 2
ER -