Techniques Choice, Misallocation and Total Factor Productivity

R.B. Uras, P. Wang

Research output: Working paperDiscussion paperOther research output

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Abstract

We develop a generalized production framework with endogenous “production techniques” that serve to organize raw factor inputs in an efficient manner. We establish a positive relationship between production flexibility and cost efficiency. By allowing firms to differ in technology scales,capital constraints and technique limitations, we illustrate an amplification of the detrimental effects of technique limitations by production flexibility. We apply the structure to studying, both theoretically and quantitatively, the consequences of capital and technique misallocation across firms for theTFP and the interplay of their TFP effects with production flexibility. Using firm-level data from U.S. manufacturing industries, we find that, due to the ampli…fication effect of production flexibility, technique misallocation generates more TFP losses than capital misallocation. Our quantitative results suggest that the relative importance of technique misallocation on TFP is substantial for a broad range of manufacturing industries –with larger TFP gains from removing technique misallocation in industries using more flexible production technologies.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER
Number of pages49
Volume2014-074
Publication statusPublished - 2 Dec 2014

Publication series

NameCentER Discussion Paper
Volume2014-074

Fingerprint

Misallocation
Total factor productivity
Manufacturing industries
Amplification
Industry
Firm-level data
Relative importance
Production technology
Flexible production
Capital constraints
Factors

Keywords

  • Capital and Technique Misallocation
  • Production Flexibility
  • Aggregate Productivity

Cite this

Uras, R. B., & Wang, P. (2014). Techniques Choice, Misallocation and Total Factor Productivity. (CentER Discussion Paper; Vol. 2014-074). Tilburg: CentER.
Uras, R.B. ; Wang, P. / Techniques Choice, Misallocation and Total Factor Productivity. Tilburg : CentER, 2014. (CentER Discussion Paper).
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Uras, RB & Wang, P 2014 'Techniques Choice, Misallocation and Total Factor Productivity' CentER Discussion Paper, vol. 2014-074, CentER, Tilburg.

Techniques Choice, Misallocation and Total Factor Productivity. / Uras, R.B.; Wang, P.

Tilburg : CentER, 2014. (CentER Discussion Paper; Vol. 2014-074).

Research output: Working paperDiscussion paperOther research output

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AB - We develop a generalized production framework with endogenous “production techniques” that serve to organize raw factor inputs in an efficient manner. We establish a positive relationship between production flexibility and cost efficiency. By allowing firms to differ in technology scales,capital constraints and technique limitations, we illustrate an amplification of the detrimental effects of technique limitations by production flexibility. We apply the structure to studying, both theoretically and quantitatively, the consequences of capital and technique misallocation across firms for theTFP and the interplay of their TFP effects with production flexibility. Using firm-level data from U.S. manufacturing industries, we find that, due to the ampli…fication effect of production flexibility, technique misallocation generates more TFP losses than capital misallocation. Our quantitative results suggest that the relative importance of technique misallocation on TFP is substantial for a broad range of manufacturing industries –with larger TFP gains from removing technique misallocation in industries using more flexible production technologies.

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Uras RB, Wang P. Techniques Choice, Misallocation and Total Factor Productivity. Tilburg: CentER. 2014 Dec 2. (CentER Discussion Paper).