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A Simple Accounting Framework for the Effect of Resource Misallocation on Aggregate Productivity

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  • Aoki, Shuhei

Abstract

This paper develops a simple accounting framework that measures the effect of resource misallocation on aggregate productivity. This framework is based on a multi-sector general equilibrium model with sector-specific frictions in the form of taxes on sectoral factor inputs. Our framework is flexible for the assumption on preferences or aggregate production functions. Moreover, this framework is consistent with that commonly used in productivity analysis. I apply this framework to measure to what extent resource misallocation explains the differences in aggregate productivity across developed countries. I find that resource misallocation explains, on average, about 25% of the differences in the measured aggregate productivity among developed countries. I also provide methods to decompose the causes of the misallocation effect.

Suggested Citation

  • Aoki, Shuhei, 2008. "A Simple Accounting Framework for the Effect of Resource Misallocation on Aggregate Productivity," MPRA Paper 11511, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11511
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    More about this item

    Keywords

    distortions; frictions; productivity; resource allocation;
    All these keywords.

    JEL classification:

    • 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
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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