Input-Output Networks and Misallocation / Jing Hang, Pravin Krishna, Heiwai Tang.

Format:

Book

Author/Creator:

Hang, Jing.

Contributor:

National Bureau of Economic Research.

Krishna, Pravin.

Tang, Heiwai.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27983.

NBER working paper series no. w27983

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

This paper develops a framework for studying the macroeconomic costs of resource misallocation. The framework enables the assessment of the conditions under which the existing estimates in the misallocation literature, which are largely based on a value-added production structure and ignore inter-sectoral linkages, provide an unbiased estimate of misallocation costs in relation to a more general setting, in which production of gross output relies upon input-output linkages across sectors. We show that in the absence of intermediate input distortions, the two approaches are isomorphic and will yield the same estimated aggregate productivity loss. When firm-specific intermediate input distortions are present, however, the value-added model produces biased estimates of TFP losses due to both model misspecification and incorrect inferences of firms' productivity and distortions. Using Chinese and Indian enterprise data, we find quantitatively similar TFP losses from resource misallocation for China, regardless of the model used, while for India, we infer significantly larger TFP losses under the gross output model.

Notes:

Print version record

October 2020.