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Productivity Volatility And The Misallocation Of Resources In Developing Economies

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Executive Summary

The authors investigate the role of dynamic production inputs and their associated adjustment costs in shaping the dispersion of Total Factor Productivity (TFP) and static measures of capital misallocation within a country. Using data on 5,010 establishments in 33 developing countries from the World Bank's Enterprise Research Data, they find that countries exhibiting greater time-series volatility of productivity are also characterized by greater cross-sectional dispersion in productivity. Volatility in TFP explains one quarter to one third of cross-country productivity dispersion.

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