Productivity loss and misallocation of resources in Southeast Asia

Francesca de Nicola, Norman Loayza and Ha Nguyen

Journal of the Asia Pacific Economy, 2024, vol. 29, issue 4, 2152-2169

Abstract: This article examines within-sector resource misallocation in three Southeast Asian countries—Indonesia, Malaysia, and Vietnam. The methodology accounts for measurement error in revenues and costs. The firm-level evidence suggests that measurement error is substantial, resulting in an overestimation of misallocation by as much as 30%. Nevertheless, resource misallocation across firms within a sector remains large, albeit declining. The findings imply that there are considerable potential gains from efficient reallocation—above 80% for Indonesia and around 20% to 30% for Malaysia and Vietnam. Private domestic firms and firms with higher productivity appear to face larger distortions that prevent them from expanding.

Date: 2024
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Working Paper: Productivity Loss and Misallocation of Resources in Southeast Asia (2020)
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DOI: 10.1080/13547860.2023.2258015

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