Understanding Productivity During the Argentine Crisis

This paper studies resource misallocation in the Argentine manufacturing (1997-2002) sector using the methodology of Hsieh and Klenow (2008). The study shows that the potential gains in terms of aggregate total factor productivity of equalizing marginal productivities of factor inputs across firms in narrowly defined industries is between 50% and 55% in relatively normal years, slightly above the 43% found by HK for the US. During the 2002 crisis the reallocation gains climbed to 60/80%. Using HK's concept of TFPR as a measure of wedges in marginal products across firms, we find that the dispersion of wedges across firms in 1997 is similar to the USA one and in 2002 it is 20% higher; and that TFPR is strongly correlated with firm level productivity (and size). Firm productivity and TFPR are positively correlated with size, age, exporting status and foreign ownership, indicating that more productive firms are likely to be larger, older, exporters, foreign owned and have relatively higher marginal products. These results should be taken with caution due to the measurement error introduced by the coarseness of the factor input data available.