Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China
We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial within- village frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). Selection substantially amplifies the productivity effect of distortionary policies by affecting occupational choices that worsen average ability in agriculture.
We are grateful to Chaoran Chen for providing excellent research assistance. We also thank for useful comments the editor, three anonymous referees, Gueorgui Kambourov, Kjetil Storesletten, Carlos Urrutia, Daniel Xu, and seminar participants at Toronto, McGill, Ottawa, REDg Barcelona, NBER, IMF, Cornell, Michigan, UBC, Xiamen U., ASU, Tsinghua-UCSD, HKUST, Western, Tsinghua, EEA Geneva, Banco de Mexico, Montreal, Ohio State, Universitat de Barcelona, McMaster, CIREQ Montreal, AMES Hong Kong, SED Edinburgh, Oslo, ESEM Lisbon, Bank of Canada/Toronto, Duke, Georgetown, EIEF Rome, CEMFI, ENSAI Rennes, Bank of Chile, Bank of Italy, Simon Fraser, National University of Singapore, Singapore Management U, ITAM, Berkeley-ARE, and Guelph. Adamopoulos, Brandt, and Restuccia gratefully acknowledge the support from the Social Sciences and Humanities Research Council of Canada. Brandt thanks the support from the Noranda Chair for International Trade and Economics. Restuccia gratefully acknowledges the support from the Canada Research Chairs program and the Bank of Canada Fellowship program. The views expressed herein are not necessarily those of the Bank of Canada and are the author's alone. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Tasso Adamopoulos & Loren Brandt & Jessica Leight & Diego Restuccia, 2022. "Misallocation, Selection, and Productivity: A Quantitative Analysis With Panel Data From China," Econometrica, Econometric Society, vol. 90(3), pages 1261-1282, May. citation courtesy of