Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom

Author/Editor:

Yu Shi

Publication Date:

September 28, 2018

Electronic Access:

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Summary:

This paper identifies a new mechanism leading to inefficiency in capital reallocation at the extensive margin when an economy experiences a sectoral boom. I argue that imperfections in the financial market and capital barriers to entry in the booming sector create a misallocation of managerial talent. Using comprehensive firm-level data from China, I first provide evidence that more productive firms reallocate capital to the booming real estate sector, and demonstrate that the pattern is likely driven by fewer financial constraints on these firms. I then use a structural estimation to verify the talent misallocation. Finally, I calibrate a dynamic model and find that the without the misallocation, the TFP growth in the manufacturing sector would have improved by 0.5% per year.

Series:

Working Paper No. 18/221

Subject:

English

Publication Date:

September 28, 2018

ISBN/ISSN:

9781484378465/1018-5941

Stock No:

WPIEA2018221

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

87

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