Misallocation and Manufacturing TFP in Bolivia during the Market Liberalization Period

This paper analyzes productivity dispersion in the Bolivian manufacturing sector during the Market Liberalization Period: 1988-2001. We analyze the effects of resource misallocation on manufacturing total factor productivity (TFP) with firm-level data and by employing the Hsieh and Klenow (2009) model. We found that if resource misallocation was eliminated, the gains in productivity would have been on the order of 54 percent on average and would have ranged from -6 percent to 38 percent relative to the United States (benchmark country). We also test if misallocation is related to reforms, and firm or geographical characteristics. There is suggestive evidence that the second-generation reforms were associated with an increase in the misallocation of resources that reached a peak in 1998, the year the economy experienced an important economic downturn.