NADS Held the 15th "Theory and Policy" Seminar

Topic: Production Networks, Trade, and Misallocation

Speaker: Heiwai Tang（Johns Hopkins University, Associate Professor）

Time: Oct 19, 2018, Friday, 14:00-15:30

Venue: Room 815, Chongde Building West Wing, RUC

Abstract:

This paper analyzes aggregate TFP losses in contexts in which policy distortions result in resource misallocation across heterogeneous firms within sectors and where firms are engaged in inter-sectoral intermediate input trade, both domestically and globally. In the presence of various policy distortions and industry input-output (IO) linkages due to firms’ global sourcing of inputs, we show that a closed economy’s aggregate TFP is simply a geometric mean of sectoral productivities, with weights equal to sectoral influences captured by their sales to GDP ratios. We discuss how a sector’s influence needs to be adjusted with each country’s domestic trade shares to incorporate global IO linkages. Importantly, sectoral TFP losses get amplified in the aggregate through IO linkages, more so when the economy’s foreign trade shares increase. We confirm this amplification quantitatively using manufacturing enterprise-level data from China and India over the period of 2000-2007. However, despite a significant amplification effect through IO linkages for both countries, our estimates of aggregate TFP losses from resource misallocation, obtained using a gross output approach, are similar and sometimes even smaller than those computed using the value-added approach adopted by Hsieh and Klenow (2009) and subsequent studies. The reason is that the distortions on input sourcing appear to be much less dispersed across firms within industries, compared to those of labor and capital, hence resulting in an upward bias in the estimated sectoral TFP losses from resource misallocation under the value-added approach.

Introduction of the Speaker:

Heiwai Tang is Associate Professor of International Economics at the Johns Hopkins University, School of Advanced International Studies. He is on the editorial boards of Journal of Comparative Economics and China Economic Review. Tang received his Ph.D. in economics from MIT and undergraduate degree in mathematics from UCLA. His research interests span a wide range of theoretical and empirical topics in international trade, with a specific focus on production networks and global value chains. His research has been published in leading journals in economics, including American Economic Review, Journal of International Economics, and Journal of Development Economics.