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Growth Accounting with Misallocation: Or, Doing Less with More in Singapore

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  • John Fernald
  • Brent Neiman

Abstract

We show that in a two-sector economy with heterogeneous capital subsidies and monopoly power, primal and dual measures of TFP growth can diverge from each other as well as from true technology. These distortions give rise to dynamic reallocation effects that imply technology growth needs to be measured from the bottom up rather than from the top down. Using Singapore as an example, we show how incomplete data can be used to estimate aggregate and sectoral technology growth as well as reallocation effects. Our framework can reconcile divergent TFP estimates in Singapore and can resolve other empirical puzzles regarding Asian development. (JEL E22, E23, E25, O33, O41, O47)

Suggested Citation

  • John Fernald & Brent Neiman, 2011. "Growth Accounting with Misallocation: Or, Doing Less with More in Singapore," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 29-74, April.
    • Handle: RePEc:aea:aejmac:v:3:y:2011:i:2:p:29-74
    Note: DOI: 10.1257/mac.3.2.29
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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