Reports
Discussion Papers
No.544 Allocation Efficiency in China: An Extension of the Dynamic Olley-Pakes Productivity Decomposition
November 2015
ABSTRACT
This
paper
develops
a
quantitative
measure
of
allocation
efficiency,
which
is
an
extension
of
the
dynamic
Olley-Pakes
productivity
decomposition
proposed
by
Melitz
and
Polanec
(2015).
The
extended
measure
enables
the
simultaneous
capture
of
the
degree
of
misallocation
within
a
group
and
between
groups
and
parallel
to
capturing
the
contribution
of
entering
and
exiting
firms
to
aggregate
productivity
growth.
This
measure
empirically
assesses
the
degree
of
misallocation
in
China
using
manufacturing
firm-level
data
from
2004
to
2007.
Misallocation
among
industrial
sectors
has
been
found
to
increase
over
time,
and
allocation
efficiency
within
an
industry
has
been
found
to
worsen
in
industries
that
use
more
capital
and
have
firms
with
relatively
higher
state-owned
market
shares.
Allocation
efficiency
among
three
ownership
sectors
(state-owned,
domestic
private,
and
foreign
sectors)
tends
to
improve
in
industries
wherein
the
market
share
moves
from
a
less-productive
state-owned
sector
to
a
more
productive
private
sector.
Keywords:
Misallocation,
Firm-level
productivity,
Structural
estimation,
China
JEL
classification:
D24,
O47
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.