Dissertations, Theses, and Capstone Projects

Date of Degree

2-2022

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Sangeeta Pratap

Committee Members

Merih Uctum

Jonathan Conning

Subject Categories

Growth and Development | Macroeconomics

Keywords

Misallocation, Productivity, Networks, Trade Shock, Mexico

Abstract

This dissertation consists of three chapters that cover topics on development macroeconomics.

Chapter 1 - Misallocation of Resources and Total Factor Productivity: Evidence from Mexico. This paper aims to measure the gross output loss due to misallocation of resources in the manufacturing and service sectors in Mexico during 2008-2018 and identify the inputs of production related to it. To do so, I use Mexican Economic Censuses and an extension of Hsieh and Klenow (2009). I also include resource misallocation computations using data processed with a Bayesian model for editing and imputing data to correct for measurement error (MEC data), which is particularly relevant for the service sector and ignored in the resource misallocation literature for Latin American countries. I find that after eliminating the resource misallocation in each sector, the gross output would increase by 55.1% in 2008, 64.4% in 2013, and 80.5% in 2018. After correcting for measurement error with the procedure described, the misallocation problem is similar in manufacturing, but it is quantitatively less relevant for the service sector. The gross output efficiency gains in this sector grow from 109.1% to 169.9% with the original data, while using the MEC data would grow from 90.5% to 119%. The large inefficient allocation of resources in the service sector is largely a result of a capital misallocation.

Chapter 2 - Input Distortions, Firm characteristics, and Productivity in the Mexican sectors. The objective of this paper is to study what determines resource misallocation in Mexico. To pursue this, I estimate econometric models to determine which firm characteristics and structural factors are responsible for this misallocation. Results show that more formal firms, as well as firms with a bank account to operate their businesses are more affected by input distortions that impede them from making optimal decisions. Also, using the latest economic census, there is evidence that insecurity and corruption faced by firms can predict if they are subject to higher input distortions, especially in the service sector. This is in addition to the traditional drivers of misallocation, such as government regulation. This suggests other potential channels for structural problems in Mexico to affect the efficient allocation of resources in the economy.

Chapter 3 - Networks and Trade Shock: An empirical exploration from Mexican manufacturing industries. Sectors in the economy are linked with each other. Depending on the network structure of production, a shock to one sector could be propagated and amplified to other sectors through input-output linkages. This paper aims to measure the effect of a trade shock on real output and labor productivity through input-output linkages for the Mexican manufacturing industries. The trade shock we study is the entry of China into the World Trade Organization (WTO) in 2001, popularly known as the ”China Shock”. I differentiate shocks that come from the internal channel -import competition between Mexico and China for Mexican market share - or the external channel - import competition between the U.S. and China for U.S. market share-. My results show that the shock from the external channel can be amplified on real output and labor productivity through an upstream effect, i.e., suppliers affected by a shock to their industry buyers. However, the shock from the internal channel triggers a downstream effect, i.e., buyers affected by a shock to their industry suppliers, on the real output and labor productivity. This evidence supports the idea that public policies in developing countries seeking to affect the real sector of the economy should consider the origin of the shock, and adopt a more holistic approach rather than targeting individual sectors as if they were disconnected.

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