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American Economic Journal: Macroeconomics: Vol. 3 No. 2 (April 2011)

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Growth Accounting with Misallocation: Or, Doing Less with More in Singapore

Article Citation

Fernald, John, and Brent Neiman. 2011. "Growth Accounting with Misallocation: Or, Doing Less with More in Singapore." American Economic Journal: Macroeconomics, 3(2): 29-74.

DOI: 10.1257/mac.3.2.29

Abstract

We show that in a two-sector economy with heterogeneous capital subsidies and monopoly power, primal and dual measures of TFP growth can diverge from each other as well as from true technology. These distortions give rise to dynamic reallocation effects that imply technology growth needs to be measured from the bottom up rather than from the top down. Using Singapore as an example, we show how incomplete data can be used to estimate aggregate and sectoral technology growth as well as reallocation effects. Our framework can reconcile divergent TFP estimates in Singapore and can resolve other empirical puzzles regarding Asian development. (JEL E22, E23, E25, O33, O41, O47)

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Authors

Fernald, John (Federal Reserve Bank of San Francisco)
Neiman, Brent (U Chicago)

JEL Classifications

E22: Capital; Investment; Capacity
E23: Macroeconomics: Production
E25: Aggregate Factor Income Distribution
O33: Technological Change: Choices and Consequences; Diffusion Processes
O41: One, Two, and Multisector Growth Models
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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