Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom

Yu Shi

No 2018/221, IMF Working Papers from International Monetary Fund

Abstract: This paper identifies a new mechanism leading to inefficiency in capital reallocation at the extensive margin when an economy experiences a sectoral boom. I argue that imperfections in the financial market and capital barriers to entry in the booming sector create a misallocation of managerial talent. Using comprehensive firm-level data from China, I first provide evidence that more productive firms reallocate capital to the booming real estate sector, and demonstrate that the pattern is likely driven by fewer financial constraints on these firms. I then use a structural estimation to verify the talent misallocation. Finally, I calibrate a dynamic model and find that the without the misallocation, the TFP growth in the manufacturing sector would have improved by 0.5% per year.

Keywords: WP; manufacturing business; financial market; Real estate boom; misallocation; aggregate productivity; credit constraint; capital reallocation; financing ability; manufacturing firm; debt dependence; firm-specific performance measurement; property development firm data; A-class company; registration information; Manufacturing; Housing; Housing prices; Comparative advantage; Land prices (search for similar items in EconPapers)
Pages: 87
Date: 2018-09-28
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Citations: View citations in EconPapers (3)

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