Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom
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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. 2018/221
Subject:
Comparative advantage Economic sectors Housing Housing prices International trade Land prices Manufacturing National accounts Prices
English
Publication Date:
September 28, 2018
ISBN/ISSN:
9781484378465/1018-5941
Stock No:
WPIEA2018221
Pages:
87
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