Three Essays on Misallocation and Productivity
Open Access
- Author:
- Han, Minsoo
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- July 05, 2013
- Committee Members:
- Neil Wallace, Dissertation Advisor/Co-Advisor
Saroj Bhattarai, Committee Chair/Co-Chair
James R. Tybout, Committee Member
David Gerard Abler, Special Member - Keywords:
- misallocation
total factor productivity
financial frictions - Abstract:
- CHAPTER 1: Plant-Level Worker Flows and the Losses from Financial Frictions Buera and Shin (2013) (BS) study the effect of financial frictions on total factor productivity (TFP). To do so, they develop a growth model in which output is produced by producers with heterogeneous productivity and there are entry and exit of producers. Their financial frictions are in the form of a collateral constraint, so that the amount of capital which producers can rent in the capital rental market is limited to some multiple of producers’ individual wealth. But plant-level worker flows predicted by their model are not consistent with data on such flows. In this paper, I recalibrate the model to match these additional data. The main finding is that TFP effect of financial frictions is smaller under the revised calibration. For the tightest collateral constraint (a producer can only employ the capital he owns), TFP is 5.6% lower than in perfect capital market, while it is 15.9% lower for the replication of BS calibration. CHAPTER 2: Capital Account Openness and the Losses from Financial Frictions The goal of this paper is to isolate the role of openness to international financial markets (capital account openness) on the total factor productivity (TFP) effect of financial frictions. To do so, I formulate a model in which individual households are either workers or entrepreneurs, can only save in the form of capital, and entrepreneurs are subject to a collateral constraint. Using this structure, I compare two steady states of a calibrated model numerically: one in which the capital rental rate must clear a domestic capital rental market (closed economy), and one in which that rate is given by the world (small open economy). The model predicts that a small open economy is affected less by financial frictions than a closed economy: for the tightest collateral constraint, TFP in a small open economy is only about 1% lower than in the economy without a collateral constraint, while it is 15% lower in a closed economy. TFP losses in a small open economy reflect factor misallocation among incumbent entrepreneurs (intensive margin), not distortions along entry-exit margin, whereas for a tight financial frictions, there are distortions on both intensive and entry-exit margins in a closed economy. Using macro data, I find that a 1% rise in openness is associated with 0.196% decline in the effect of financial frictions on TFP. Running the same regression on subsamples, I also find that this empirical result mainly comes from a group of low income countries. CHAPTER 3: The Losses from Tax-type Distortions in a Model with Innovation In this paper, I assess total factor productivity (TFP) losses from tax-type distortions. To do so, I introduce firm-specific tax-type distortions into a model like that of Luttmer (2007) and Atkeson and Burstein (2010), both of which have firms entering and exiting and engaging in costly process innovation that raises the probability of receiving higher future productivity. Then I compare the TFP gain from removing the tax-type distortions in this model with the TFP gain from their removal in a static model like that of Hsieh and Klenow(2009). The main finding is that both kinds of models make the similar prediction for the gains from removing the distortions. This happens because removing the distortions in the first kind of model gives rise to two offsetting effects on the incentive to engage in costly process innovation: the absence of distortions increases that incentive, while the induced greater entry increases competition and, thereby, reduces that incentive.