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 ‡exibility and cost efficiency. By allowing …firms to differ in technology scales, capital constraints and technique limitations, we illustrate an ampli…cation of the detrimental effects of technique limitations by production ‡exibility. We apply the structure to studying, both theoretically and quantitatively, the consequences of capital and technique misallocation across …firms for the TFP and the interplay of their TFP effects with production ‡exibility. Using …firm-level data from U.S. manufacturing industries, we fi…nd that, due to the ampli…cation effect of production ‡exibility, 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 ‡exible production technologies.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages49
Volume2014-012
Publication statusPublished - 2 Dec 2014

Publication series

NameEBC Discussion Paper Series
Volume2014-012

Fingerprint

Misallocation
Total factor productivity
Manufacturing industries
Industry
Firm-level data
Relative importance
Production technology
Capital constraints
Production efficiency
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. (EBC Discussion Paper Series; Vol. 2014-012). Tilburg: EBC.
Uras, R.B. ; Wang, P. / Techniques Choice, Misallocation and Total Factor Productivity. Tilburg : EBC, 2014. (EBC Discussion Paper Series).
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Uras, RB & Wang, P 2014 'Techniques Choice, Misallocation and Total Factor Productivity' EBC Discussion Paper Series, vol. 2014-012, EBC, Tilburg.

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

Tilburg : EBC, 2014. (EBC Discussion Paper Series; Vol. 2014-012).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Techniques Choice, Misallocation and Total Factor Productivity

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AU - Wang, P.

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N2 - 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 ‡exibility and cost efficiency. By allowing …firms to differ in technology scales, capital constraints and technique limitations, we illustrate an ampli…cation of the detrimental effects of technique limitations by production ‡exibility. We apply the structure to studying, both theoretically and quantitatively, the consequences of capital and technique misallocation across …firms for the TFP and the interplay of their TFP effects with production ‡exibility. Using …firm-level data from U.S. manufacturing industries, we fi…nd that, due to the ampli…cation effect of production ‡exibility, 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 ‡exible production technologies.

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 ‡exibility and cost efficiency. By allowing …firms to differ in technology scales, capital constraints and technique limitations, we illustrate an ampli…cation of the detrimental effects of technique limitations by production ‡exibility. We apply the structure to studying, both theoretically and quantitatively, the consequences of capital and technique misallocation across …firms for the TFP and the interplay of their TFP effects with production ‡exibility. Using …firm-level data from U.S. manufacturing industries, we fi…nd that, due to the ampli…cation effect of production ‡exibility, 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 ‡exible production technologies.

KW - Capital and Technique Misallocation

KW - Production Flexibility

KW - Aggregate Productivity

M3 - Discussion paper

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PB - EBC

CY - Tilburg

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