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

September 28, 2018

Preview Citation

Format: Chicago

Yu Shi. Sectoral Booms and Misallocation of Managerial Talent: Evidence from the Chinese Real Estate Boom, (USA: International Monetary Fund, 2018) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Comparative advantage, Economic sectors, Housing, Housing prices, International trade, Land prices, Manufacturing, National accounts, Prices

Keywords: A-class company, Aggregate productivity, Capital reallocation, Comparative advantage, Credit constraint, Debt dependence, Financial market, Financing ability, Firm-specific performance measurement, Housing, Housing prices, Land prices, Manufacturing, Manufacturing business, Manufacturing firm, Misallocation, Property development firm data, Real estate boom, Registration information, WP

Publication Details

Pages:

87
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/221
Stock No:

WPIEA2018221
ISBN:

9781484378465
ISSN:

1018-5941

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