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Groningen Growth and Development Centre

Faculty of Economics and Business
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Resource misallocation: where to focus attention?

Date:11 January 2016
Author:Robert Inklaar

Productivity gains from a more efficient allocation of capital and labor across firms are large. However, a recent study of manufacturing firms in low- and middle-income countries by Robert Inklaar, Addisu Lashitew and Marcel Timmer, finds that the gains are modest compared to the overall productivity differences between these countries and the United States. More importantly, the countries with lower income levels do not have more to gain from improving the efficiency of resource allocation, suggesting we should have official statistics tracking the efficiency of resource allocation in different countries  to better target and evaluate policies, as the potential gains are large enough to be worth having.

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