Abstract
Resource misallocation can lower aggregate total factor productivity (TFP). This paper uses Hsieh and Klenow’s (2009) methodology to quantify the effect of within-industry resource misallocation on aggregate TFP in Cote d’Ivoire by focusing on all the sectors of the economy (agriculture, manufacturing and services) during the period 2013-2015. The results show that within-industry misallocation, measured by the change in revenue of total factor productivity (TFPR) is large and significant between 2013 and 2015. The potential TFP gains resulting from the removal of distortions are about 95%-160% for the overall economy and 15%-20% for the manufacturing sector; when the United States’ level of efficiency is used as a benchmark. These figures imply a loss (or deterioration) of allocative efficiency between 2013 and 2015 by 33%, and misallocation seems to be greater in the agricultural sector than in other sectors. The results also find that small firms face advantageous distortions, while large firms seem to have disadvantageous ones. Moreover, the efficient size distribution of firms in the absence of distortions is more dispersed than the actual size distribution. These results suggest that policy makers need to focus more attention on the allocation of resources.
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