Productivity and Misallocation During a Crisis: Evidence from the Chilean Crisis of 1982

Ezra Oberfield

Review of Economic Dynamics, 2013, vol. 16, issue 1, 100-119

Abstract: Measured total factor productivity often declines sharply during financial crises. In 1982, the Chilean manufacturing sector suffered a severe contraction in output, most of which can be accounted for by a falling Solow residual. This paper uses establishment data from the Chilean manufacturing census to examine the decline in measured TFP. To quantify the contribution of resource misallocation, I develop a measure of allocational efficiency along the lines of Hsieh & Klenow (2009) and derive the appropriate measure of aggregate productivity to which it should be compared. Across specifications, within-industry allocational efficiency either remained constant or improved in 1982, while a decline in between-industry allocational efficiency accounts for about one-third of the reduction in TFP. Industries more sensitive to domestic demand -- durables and industries with low exports -- experienced larger declines in measured TFP. This finding is consistent with large adjustment costs and underutilization of inputs. Reduced capital utilization played a substantial role, accounting for 25-50 percent of the decline in measured TFP. (Copyright: Elsevier)

Keywords: Productivity; Financial crisis; Misallocation; Aggregation (search for similar items in EconPapers)
JEL-codes: E32 F44 G01 O47 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (79)

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DOI: 10.1010/j.red.2012.10.005

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