A0358
Title: Input misallocation and productivity dynamics
Authors: Hung-pin Lai - National Chung Cheng University (Taiwan) [presenting]
Subal Kumbhakar - State University of New York at Binghamton (United States)
Abstract: The purpose is to build on an existing model to offer a refined analysis of how input misallocations impact aggregate total factor productivity (TFP). The original model is enhanced by relaxing the assumption of uniform input prices and adopting an econometric approach to estimate parameters using firm-level data. The estimation of model parameters and allocation efficiency is based on the system of input demand and the production function. An indirect inference approach is used to estimate the system to avoid maximum likelihood estimation, which often faces convergence issues when there are numerous constraints. The model is demonstrated using the US firm-level manufacturing panel data from 1975 to 2010. The final sample contains 55,518 observations. The manufacturing industry is divided into seven major categories. Findings indicate that between 1975 and 2010, the average productivity growth rate was 2.8\%, but could have reached 3.2\% without misallocation, highlighting the substantial gains possible through better resource allocation.
