Resource Misallocation and Aggregate Productivity in Punjab

This paper follows Hsieh and Klenow’s (2009) study in examining the role of misallocation in aggregate productivity for manufacturing plants in Punjab, Pakistan. Using data on manufacturing plants in Punjab from the Census of Manufacturing Industries for 2000/01 and 2005/06, we look at the extent to which marginal products differ across firms within each industry. We then simulate a liberalization setting by allowing the marginal product to equalize across plants in each industry, and find relatively more productivity dispersion in Punjab than Hsieh and Klenow do for India and China. We also find that moving to the US efficiency level boosts manufacturing total factor productivity in Punjab by 23.61 percent and 47.40 percent for 2000/01 and 2005/06, respectively. Finally, the paper explores potential sources of productivity dispersion for manufacturing plants in Punjab.