Resource Misallocation and Productivity: Evidence from Mexico

IMF Working Papers, May 15, 2018

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Validates the indirect measurement of misallocation (Hsieh and Klenow, 2009) by illustrating a close correlation between misallocation and per capita incomes across Mexican states.
Exploits large variation in resource misallocation within industries and across states, using rich firm-, local-, and industry-level data to identify determinants of misallocation.
Identifies several well-defined distortions that have a statistically and economically meaningful effect on productivity via resource misallocation.

There is a close correlation between measured resource misallocation and per capita incomes across Mexican states.
Variation in misallocation within industry-state pairs is large and can be linked to specific structural distortions.
Several identifiable distortions (described in the paper) exert statistically and economically meaningful effects on productivity through the resource misallocation channel.

Indirect measurement approach following Hsieh and Klenow (2009) is validated empirically for Mexico.
Analysis leverages unusually rich microdata at the firm, local, and industry levels.
Exploits cross-state and within-industry variation to link misallocation to observable distortions.

Subjects: Corruption, Crime, Labor, Production, Productivity, Total factor productivity
Keywords: Corruption, dependent variable, Distortions Author’s, Global, industry-state pair, market concentration, output wedge, Productivity, resource misallocation, TFP gain, Total factor productivity, wage bill, WP

Resource Misallocation and Productivity: Evidence from Mexico, WP/18/112, May 2018
- Resource Misallocation and Productivity: Evidence from Mexico, WP/18/112, May 2018 (Markdown version)
- Resource Misallocation and Productivity: Evidence from Mexico, WP/18/112, May 2018 (PDF)