The role of returns to scale in measuring frictions in resource allocation: Revisiting misallocation and manufacturing TFP in China

Guan Gong and Guanliang Hu

Economics Letters, 2016, vol. 138, issue C, 26-29

Abstract: This paper extends the study by Hsieh and Klenow (2009) on productivity implication of resource misallocation by relaxing the assumption of constant returns to scale (CRS) for differentiated products. We show that when the CRS assumption fails, measuring frictions in resource allocation by variation in revenue productivity, as proposed by Hsieh and Klenow (2009), overestimates the resource misallocation in China.

Keywords: Misallocation; TFP; Returns to scale (search for similar items in EconPapers)
JEL-codes: C49 O11 O47 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:138:y:2016:i:c:p:26-29

DOI: 10.1016/j.econlet.2015.11.014

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