Misallocation and Manufacturing TFP in China and India
TL;DR: This paper measured sizable gaps in marginal products of labor and capital across plants within narrowly defined industries in China and India compared with the United States, and calculated manufacturing TFP gains of 30%-50% in China, and 40%-60% in India.
Abstract: Resource misallocation can lower aggregate total factor productivity (TFP).We
use microdata on manufacturing establishments to quantify the potential extent
of misallocation in China and India versus the United States. We measure sizable
gaps in marginal products of labor and capital across plants within narrowly
defined industries in China and India compared with the United States. When
capital and labor are hypothetically reallocated to equalize marginal products to
the extent observed in the United States, we calculate manufacturing TFP gains
of 30%–50% in China and 40%–60% in India.
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TL;DR: This paper analyzed the effect of Chinese import competition between 1990 and 2007 on US local labor markets, exploiting cross-market variation in import exposure stemming from initial diffe cerence to US labor markets.
Abstract: We analyze the effect of rising Chinese import competition between 1990 and 2007 on US local labor markets, exploiting cross-market variation in import exposure stemming from initial diffe...
2,818 citations
TL;DR: The authors surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels, and lays out what I see are the major questions that research in the area should address going forward.
Abstract: Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices -- and therefore over which producers have some direct control, at least in theory -- as well as from producers' external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)
2,380 citations
TL;DR: In this paper, the authors studied the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms and showed that the increase in revenues produced by trade integration can induce exporters to upgrade technology.
Abstract: This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in Melitz’s (2003) model of trade with heterogeneous firms. The joint treatment of the technology adoption and exporting choices shows that the increase in revenues produced by trade integration can induce exporters to upgrade technology. An empirical test of the model reveals that firms in industries facing higher reductions in Brazil’s import tariffs increase their investment in technology faster and exporters upgrade technology faster than other firms in the same industry.
1,365 citations
TL;DR: In this paper, the authors formulate a version of the growth model in which production is carried out by heterogeneous establishments and calibrate it to US data, and argue that differences in the allocation of resources across establishments that differ in productivity may be an important factor in accounting for cross-country differences in output per capita.
1,299 citations
TL;DR: This paper found that only half of the difference in labor productivity between firms and countries could be explained by differential inputs, such as capital intensity, and that the productivity differences across firms and plants are temporary but persist over time.
Abstract: Economists have long puzzled over the astounding differences in productivity between firms and countries. For example, looking at disaggregated data on U.S. manufacturing industries, Syverson (2004a) found that plants at the 90th percentile produced four times as much as the plant in the 10th percentile on a per-employee basis. Only half of this difference in labor productivity could be accounted for by differential inputs, such as capital intensity. Syverson looked at industries defined at the four-digit level in the Standard Industrial Classification (SIC) system (now the North American Industry Classification System or NAICS) like 'Bakeries and Tortilla Manufacturing' or 'Plastics Product Manufacturing.' Foster, Haltiwanger, and Syverson (2008) show large differences in total factor productivity even within very homogeneous goods industries such as boxes and block ice. Some of these productivity differences across firms and plants are temporary, but in large part they persist over time. At the country level, Hall and Jones (1999) and Jones and Romer (2009) show how the stark differences in productivity across countries account for a substantial fraction of the differences in average per capita income. Both at the plant level and at the national level, differences in productivity are typically calculated as a residual-that is, productivity is inferred as the gap between output and inputs that cannot be accounted for by conventionally measured inputs.
1,169 citations
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TL;DR: This paper developed a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade and showed how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market).
Abstract: This paper develops a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade. The model shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.
9,036 citations
TL;DR: This article showed that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which are referred to as social infrastructure and called social infrastructure as endogenous, determined historically by location and other factors captured by language.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker—we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language. In 1988 output per worker in the United States was more than 35 times higher than output per worker in Niger. In just over ten days the average worker in the United States produced as much as an average worker in Niger produced in an entire year. Explaining such vast differences in economic performance is one of the fundamental challenges of economics. Analysis based on an aggregate production function provides some insight into these differences, an approach taken by Mankiw, Romer, and Weil [1992] and Dougherty and Jorgenson [1996], among others. Differences among countries can be attributed to differences in human capital, physical capital, and productivity. Building on their analysis, our results suggest that differences in each element of the production function are important. In particular, however, our results emphasize the key role played by productivity. For example, consider the 35-fold difference in output per worker between the United States and Niger. Different capital intensities in the two countries contributed a factor of 1.5 to the income differences, while different levels of educational attainment contributed a factor of 3.1. The remaining difference—a factor of 7.7—remains as the productivity residual. * A previous version of this paper was circulated under the title ‘‘The Productivity of Nations.’’ This research was supported by the Center for Economic Policy Research at Stanford and by the National Science Foundation under grants SBR-9410039 (Hall) and SBR-9510916 (Jones) and is part of the National Bureau of Economic Research’s program on Economic Fluctuations and Growth. We thank Bobby Sinclair for excellent research assistance and colleagues too numerous to list for an outpouring of helpful commentary. Data used in the paper are available online from http://www.stanford.edu/,chadj.
6,454 citations
TL;DR: In this article, a dynamic stochastic model for a competitive industry is developed in which entry, exit, and the growth of firms' output and employment is determined, and conditions under which there is entry and exit in the long run are developed.
Abstract: A dynamic stochastic model for a competitive industry is developed in which entry, exit, and the growth of firms' output and employment is determined. The paper extends long-run industry equilibrium theory to account for entry, exit, and heterogeneity in the size and growth rate of firms. Conditions under which there is entry and exit in the long run are developed. Cross sectional implications and distributions of profits and value of firms are derived. Comparative statics on the equilibrium size distribution and turnover rates are analyzed. Copyright 1992 by The Econometric Society.
2,778 citations
TL;DR: In this article, a new theory of the size distributions of business firms is proposed, which postulates an underlying distribution of persons by managerial "talent" and then studies the division of persons into managers and employees and the allocation of productive factors across managers.
Abstract: This paper proposes a new theory of the size distributions of business firms. It postulates an underlying distribution of persons by managerial "talent" and then studies the division of persons into managers and employees and the allocation of productive factors across managers. The implications of the theory for secular changes in average firm size are developed and tested on U.S. time series.
2,346 citations
TL;DR: In this paper, the authors develop a monopolistically competitive model of trade with firm heterogeneity and endogenous differences in the "toughness" of competition across markets, in terms of the number and average productivity of competing firms.
Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity—in terms of productivity differences—and endogenous differences in the “toughness” of competition across markets—in terms of the number and average productivity of competing firms. We analyse how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average mark-ups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower mark-ups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modelling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous mark-ups.
2,002 citations