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Analyzing the Sources of Misallocation in Indian Manufacturing: A Gross-Output Approach

Sujana Kabiraj ()
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Sujana Kabiraj: University of Wisconsin-Stevens Point, United States. E-mail:

Asian Development Review, 2020, vol. 37, issue 2, 134-166

Abstract: It is well established that misallocation of factor resources lowers productivity. In this paper, I use data from both formal and informal firms to study distortions in input and output markets as sources of misallocation in the Indian manufacturing sector. My work extends the seminal work of Hsieh and Klenow (2009). I consider output, capital, raw material, energy, and service sector distortions in a monopolistically competitive framework to measure the aggregate dispersion in total factor revenue productivity (TFPR). I also decompose the variance in TFPR and show that raw material and output distortions play a major role in defining aggregate misallocation.

Keywords: distortion; Indian manufacturing; misallocation; productivity (search for similar items in EconPapers)
JEL-codes: E10 O41 O47 (search for similar items in EconPapers)
Date: 2020
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