Productivity and misallocation during a crisis: Evidence from the Chilean crisis of 1982

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Abstract

Measured total factor productivity often declines sharply during financial crises. In 1982, the Chilean manufacturing sector suffered a severe contraction in output, most of which can be accounted for by a falling Solow residual. This paper uses establishment data from the Chilean manufacturing census to examine the decline in measured TFP. To quantify the contribution of resource misallocation, I develop a measure of allocational efficiency along the lines of Hsieh and Klenow (2009) and derive the appropriate measure of aggregate productivity to which it should be compared. Across specifications, within-industry allocational efficiency either remained constant or improved in 1982, while a decline in between-industry allocational efficiency accounts for about one-third of the reduction in TFP. Industries more sensitive to domestic demand - durables and industries with low exports - experienced larger declines in measured TFP. This finding is consistent with large adjustment costs and underutilization of inputs. Reduced capital utilization played a substantial role, accounting for 25-50 percent of the decline in measured TFP.

Original languageEnglish (US)
Pages (from-to)100-119
Number of pages20
JournalReview of Economic Dynamics
Volume16
Issue number1
DOIs
StatePublished - Jan 1 2013
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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