Allocative efficiency and the productivity slowdown

Lin Shao and Rongsheng Tang

No 1185, BIS Working Papers from Bank for International Settlements

Abstract: This paper evaluates the contribution of cross-sector allocative efficiency to the productivity slowdown in the US during the 1970s and 2000s. We extend the framework of Oberfield (2013) to derive sufficient statistics for allocative efficiency and decompose aggregate productivity growth in a multi-sector economy with or without input-output linkages. We find approximately two-thirds of the productivity slowdown can be explained by the lack of improvement in allocative efficiency. Furthermore, data shows that increased sector-level volatility is associated with the deterioration of allocative efficiency.

Keywords: productivity slowdown; allocative efficiency; volatility; adjustment costs (search for similar items in EconPapers)
JEL-codes: E23 O47 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-eff
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