Misallocation and manufacturing TFP in Colombia

Following Hsieh and Klenow (2009) this paper studies productivity dispersion in Colombian industrial establishments using the Colombian Annual Manufacturing Survey (AMS) from 1982 to 1998. We consider how much a hypothetical removal of firm-level distortions would increase manufacturing productivity in Colombia and compare it with the United States. We find that such a reallocation would increase manufacturing Total Factor Productivity (TFP) in Colombia around 15% more than in the United States in our baseline calibration. We find that distortions have been increasing over time. Productivity gains are larger if we use Colombia’s higher estimated elasticity of output with respect to capital. Furthermore we show that TFP is positively correlated with exporting status, age, size, and location in the Oriental region and the capital of the country.