Explaining Reallocation's Apparent Negative Contribution to Growth

LICOS Discussion Paper No. 299/2011

33 Pages Posted: 30 Jan 2012

See all articles by Mitsukuni Nishida

Mitsukuni Nishida

Johns Hopkins University - Carey Business School

Amil Petrin

University of Minnesota - Duluth; National Bureau of Economic Research (NBER)

Saao Polanec

University of Ljubljana - Faculty of Economics

Date Written: November 9, 2011

Abstract

We explain a puzzle from two recent meta-analyses that cover 25 countries and claim to show that inputs systematically move from higher-value to lower-value activities despite strong aggregate labor productivity growth (ALP). These papers use variants of the Baily, Hulten and Campbell (1992) decomposition of ALP to show that the reallocation covariance term is negative in all but two countries and the reallocation between term is negative in nine countries and weakly positive in most others. We decompose ALP using three micro-level data sets from Chile, Colombia, and Slovenia and show the same puzzle holds. We show that the ALP between term can be decomposed into a term related to reallocation and a term related to the change in the total number of …ms, the latter of which often works to reduce the total between term in our data. We also show these ALP patterns can arise because of heterogeneity in labor and capital, unobserved output prices, or capacity utilization, but controlling for them only marginally helps to explain away the ALP reallocation puzzles in our micro-level data sets. We show that there is no puzzle when one decomposes aggregate productivity growth in the terms of National Accounts, as inputs in the aggregate move from low to high value activities in 36 of our 39 country-year observations. We conclude that there is a fundamental difference in reallocation measured by the ALP decomposition and that measured by the decomposition of National Accounts growth.

Suggested Citation

Nishida, Mitsukuni and Petrin, Amil and Polanec, Saso, Explaining Reallocation's Apparent Negative Contribution to Growth (November 9, 2011). LICOS Discussion Paper No. 299/2011, Available at SSRN: https://ssrn.com/abstract=1995468 or http://dx.doi.org/10.2139/ssrn.1995468

Mitsukuni Nishida (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/mitsukuninishida/

Amil Petrin

University of Minnesota - Duluth ( email )

1049 University Drive
Duluth, MN 55812
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Saso Polanec

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
57
Abstract Views
895
Rank
659,560
PlumX Metrics