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Misallocation of Resources in Latvia: Did Anything Change During the Crisis?

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  • Konstantins Benkovskis

    (Bank of Latvia)

Abstract

This paper evaluates misallocation of resources in Latvia during 2007–2013 using firm-level data. I found that allocation of resources worsened before 2010 and improved afterwards. Initially, misallocation of intermediate inputs was the major source of aggregate TFP losses, while the importance of capital misallocation increased after the financial crisis. Determinants of changes in allocation efficiency may include growing competition in domestic markets, tighter credit supply and legal issues. However, I show that fragmentation of production induces bias to the estimates of firm-specific distortions. Thus, in the absence of inter-firm trade data, the conclusions on misallocation should be treated with some caution.

Suggested Citation

  • Konstantins Benkovskis, 2015. "Misallocation of Resources in Latvia: Did Anything Change During the Crisis?," Working Papers 2015/05, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:201505
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    References listed on IDEAS

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    Cited by:

    1. Daniel A. Dias & Carlos Robalo Marques & Christine Richmond, 2020. "A Tale of Two Sectors: Why is Misallocation Higher in Services than in Manufacturing?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 361-393, June.
    2. Claire Giordano, Paloma Lopez-Garcia, 2018. "Is corruption efficiency-enhancing? A case study of the Central and Eastern European region," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 119-164, June.
    3. Dias, Daniel A. & Robalo Marques, Carlos & Richmond, Christine, 2016. "Misallocation and productivity in the lead up to the Eurozone crisis," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 46-70.
    4. Orozco Vázquez Miguel, 2023. "Misallocation of Resources, Firm Characteristics, and Structural Factors: Evidence from Mexico," Working Papers 2023-11, Banco de México.
    5. Konstantins Benkovskis & Eduards Goluzins & Olegs Tkacevs, 2016. "CGE model with fiscal sector for Latvia," Working Papers 2016/01, Latvijas Banka.
    6. Carlos Robalo Marques & Daniel Dias & Christine Richmond, 2016. "Comparing misallocation between sectors in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    7. Elisa Gamberoni & Christine Gartner & Claire Giordano & Paloma Lopez-Garcia, 2016. "Is corruption efficiency-enhancing? A case study of nine Central and Eastern European countries," Questioni di Economia e Finanza (Occasional Papers) 331, Bank of Italy, Economic Research and International Relations Area.
    8. Konstantins Benkovskis & Olegs Tkacevs, 2015. "Everything you always wanted to know about Latvia's service exporters (but were afraid to ask)," Working Papers 2015/06, Latvijas Banka.

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    More about this item

    Keywords

    misallocation; TFP; productivity; firm-level data; Latvia;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • 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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