IDEAS home Printed from https://ideas.repec.org/p/ltv/wpaper/201505.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.bank.lv/images/stories/pielikumi/publikacijas/petijumi/wp_5_2015-en.pdf
    Download Restriction: no
    File URL: https://www.macroeconomics.lv/sites/default/files/wp_5_2015-en_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    2. S.K. Bhutani, 2009. "China and India," India Quarterly: A Journal of International Affairs, , vol. 65(4), pages 383-391, October.
    3. Ludmila Fadejeva & Olegs Krasnopjorovs, 2015. "Labour market adjustment during 2008-2013 in Latvia: firm level evidence," Working Papers 2015/02, Latvijas Banka.
    4. Andrew B. Bernard & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2018. "Two-Sided Heterogeneity and Trade," The Review of Economics and Statistics, MIT Press, vol. 100(3), pages 424-439, July.
    5. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    6. Rudolfs Bems & Julian di Giovanni, 2016. "Income-Induced Expenditure Switching," American Economic Review, American Economic Association, vol. 106(12), pages 3898-3931, December.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. Manuel García‐Santana & Enrique Moral‐Benito & Josep Pijoan‐Mas & Roberto Ramos, 2020. "Growing Like Spain: 1995–2007," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 383-416, February.
    9. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    10. di Mauro, Filippo & Lopez-Garcia, Paloma, 2015. "Assessing European competitiveness: the new CompNet microbased database," Working Paper Series 1764, European Central Bank.
    11. Dhyne, Emmanuel & Berthou, Antoine & Soares, Ana Cristina & Bugamelli, Matteo & Cazacu, Ana-Maria & Lalinsky, Tibor & Meriküll, Jaanika & Harasztosi, Péter & Demian, Calin-Vlad & Oropallo, Filippo, 2015. "Assessing European firms' exports and productivity distributions: the CompNet trade module," Working Paper Series 1788, European Central Bank.
    12. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    13. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    14. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    15. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2009. "Measuring and Analyzing Cross-country Differences in Firm Dynamics," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 15-76, National Bureau of Economic Research, Inc.
    16. Kalina Manova & Shang-Jin Wei & Zhiwei Zhang, 2015. "Firm Exports and Multinational Activity Under Credit Constraints," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 574-588, July.
    17. Konstantins Benkovskis & Santa Berzina & Liva Zorgenfreija, 2016. "Evaluation of Latvia’s re-exports using firm-level trade data," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 16(1), pages 1-20.
    18. 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.
    19. Ieva Brauksa & Ludmila Fadejeva, 2013. "Internal Labour Market Mobility in 2005-2011: The Case of Latvia," Working Papers 2013/02, Latvijas Banka.
    20. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Daniel Dias, 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.
    5. 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.
    6. Orozco Vázquez Miguel, 2023. "Misallocation of Resources, Firm Characteristics, and Structural Factors: Evidence from Mexico," Working Papers 2023-11, Banco de México.
    7. Konstantins Benkovskis & Eduards Goluzins & Olegs Tkacevs, 2016. "CGE model with fiscal sector for Latvia," Working Papers 2016/01, Latvijas Banka.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Konstantins Benkovskis, 2018. "Misallocation, productivity and fragmentation of production: the case of Latvia," Journal of Productivity Analysis, Springer, vol. 49(2), pages 187-206, June.
    2. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    3. Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
    4. Strauss, Hubert, 2011. "Productivity and growth in Europe: Editor's introduction," EIB Papers 1/2011, European Investment Bank, Economics Department.
    5. Haltiwanger, John, 2011. "Firm dynamics and productivity growth," EIB Papers 5/2011, European Investment Bank, Economics Department.
    6. Altomonte, Carlo & Ottaviano, Gianmarco, 2011. "The role of international production sharing in EU productivity and competitiveness," EIB Papers 3/2011, European Investment Bank, Economics Department.
    7. Eric J. Bartelsman, 2010. "Searching for the sources of productivity from macro to micro and back," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(6), pages 1891-1917, December.
    8. Manova, Kalina & Berthou, Antoine & Sandoz, Charlotte & Chung, John Jong-Hyun, 2019. "Trade, Productivity and (Mis)allocation," CEPR Discussion Papers 14203, C.E.P.R. Discussion Papers.
    9. Uppenberg, Kristian, 2011. "Economic growth in the US and the EU: a sectoral decomposition," EIB Papers 2/2011, European Investment Bank, Economics Department.
    10. Duverger, Catherine & van Pottelsberghe de la Potterie, Bruno, 2011. "Determinants of productivity growth: Science and technology policies and the contribution of R&D," EIB Papers 9/2011, European Investment Bank, Economics Department.
    11. Duranton,Gilles & Ghani,Syed Ejaz & Grover,Arti Goswami & Kerr,William Robert & Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "The misallocation of land and other factors of production in India," Policy Research Working Paper Series 7221, The World Bank.
    12. Giordano, Claire & Lopez-Garcia, Paloma, 2019. "Firm heterogeneity and trade in EU countries: a cross-country analysis," Occasional Paper Series 225, European Central Bank.
    13. Bah, El-hadj & Fang, Lei, 2015. "Impact of the business environment on output and productivity in Africa," Journal of Development Economics, Elsevier, vol. 114(C), pages 159-171.
    14. Sara Calligaris & Massimo Del Gatto & Fadi Hassan & Gianmarco I P Ottaviano & Fabiano Schivardi & Tommaso MonacelliManaging Editor, 2018. "The productivity puzzle and misallocation: an Italian perspective," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(96), pages 635-684.
    15. Enghin Atalay, 2014. "Materials Prices And Productivity," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 575-611, June.
    16. Huang, Hanwei & Manova, Kalina & Perelló, Oscar & Pisch, Frank, 2024. "Firm Heterogeneity and Imperfect Competition in Global Production Networks," CEPR Discussion Papers 19408, C.E.P.R. Discussion Papers.
    17. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2015. "Credit constraints, quality, and export prices: Theory and evidence from China," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 390-416.
    18. Chen, Lili & Guo, Shaoyu & Lu, Jian & Gerschewski, Stephan, 2021. "Outward FDI and efficiency in within-firm resource allocation – Evidence from firm-level data of China," Journal of Asian Economics, Elsevier, vol. 74(C).
    19. Elisa Gamberoni & Claire Giordano & Paloma Lopez-Garcia, 2016. "Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants," Questioni di Economia e Finanza (Occasional Papers) 349, Bank of Italy, Economic Research and International Relations Area.
    20. Robert C. Feenstra & Zhiyuan Li & Miaojie Yu, 2014. "Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 729-744, October.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ltv:wpaper:201505. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Konstantins Benkovskis (email available below). General contact details of provider: https://edirc.repec.org/data/bolgvlv.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.