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Misallocation within and between Industries: A Firm-level Analysis of Iranian Enterprises

Ebrahimi, Mahshad | 2023

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 56530 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Mahmoudzadeh, Amineh
  7. Abstract:
  8. The per capita income and welfare levels of countries around the world vary significantly from each other. Identifying the factors that lead to differences in the per capita income of countries as well as their welfare levels is a major concern for economists. Studies conducted in this field indicate that one of the main sources of these differences is the significant disparity in the total factor productivity (TFP) across countries. Suboptimal resource allocation is one of the most influential factors affecting TFP in countries. The primary importance of investigating misallocation in the Iranian economy is that, in line with the decrease in economic growth, the growth rate of industrial firms in Iran has become very slow, even approaching zero. Annually, with an increase in the degree of resource misallocation, the growth trend of industrial firms has also been affected. Government interventions in industries in Iran occur at different levels, and the mechanism and intensity of the impact of resource misallocation on the economy at each of these levels are subject to question. This research aims to measure misallocation within and between industries. Many studies have shown that industrial characteristics and macroeconomic indicators influence the intensity of misallocation, which is also examined in this research. To address these questions, the Aabreld model (2013) is used, and the necessary variables for the model are constructed using panel data of Iranian industrial firms from 2002 to 2018. This model measures the efficiency of resource allocation within, between, and at the macro level of industries, as well as the benefits of optimal resource allocation at different levels. Since the variable of firm capital is not properly and completely reported in the data used in this research, the PIM method is used to calculate firm capital. The results of this study show that misallocation at the macro level is affected by fluctuations in misallocation within and between industries, but it is important to note that misallocation within industries predominates and has the greatest impact on macro-level misallocation. The efficiency indices for resource allocation within, between, and at the macro level of industries are, on average, 0.3, 0.85, and 0.26 (at the three-digit ISIC level), respectively. In other words, if resource redistribution is done at each of these levels, the efficiency indices for resource allocation will improve by approximately 70%, 15%, and 74%, respectively. Finally, it appears that the within-industry resource allocation efficiency index has a negative correlation with external linkage indices, size (value added, labor, and capital), and energy consumption. Additionally, this index has a positive correlation with the competitiveness index of each industry. Furthermore, the between-industry resource allocation efficiency index weakens during economic recession, credit contraction, exchange rate volatility, and increased sanctions. In contrast, it seems that the within-industry resource allocation efficiency index weakens during credit expansion and does not have a meaningful correlation with other macro-level industry indicators
  9. Keywords:
  10. Total Factor Productivity (TFP) ; Manufacturing Establishments ; Between Industries Misallocation ; Whitin Industries Misallocation ; Resources Misallocation ; Industrial Characteristics ; Macroeconomics Indexes

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