Diego Restuccia, University of Toronto: Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China
Department seminar. Diego Restuccia is a Professor of Economics at the University of Toronto. He will present a paper entitled "Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China", co-authored by Tasso Adamopoulos, Loren Brandt, and Jessica Leight.
Diego Restuccia. Photo: University of Toronto
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 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 in China 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). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.