Misallocation and Manufacturing TFP in Korea, 1982-2007

The authors apply the analysis of Hsieh and Klenow (2009) to assess the degree of resource misallocation in the Republic of Korea manufacturing sector from 1982 to 2007. They find improvement in the aggregate allocative efficiency during the first decade and a strong reversal after 1992. This pattern reflects the dynamics of the within-industry distortion measures for most industries and is consistent with the evolving systematic relationship between the age/value added of establishments and their measured idiosyncratic distortions over the sample period. Their finding suggests that the observed dispersion in revenue productivity should not be dismissed as mere artifacts of misspecification or measurement errors