Misallocation, Economic Growth, and Input-Output Economics

One of the most important developments in the growth literature of the last decade is the enhanced appreciation of the role that the misallocation of resources plays in helping us understand income differences across countries. Misallocation at the micro level typically reduces total factor productivity at the macro level. Quantifying these effects is leading growth researchers in new directions, two examples being the extensive use of firm-level data and the exploration of input-output tables, and promises to yield new insights on why some countries are so much richer than others.