Is Misallocation Really Mismeasurement?

• Author: Cian Ruane
• Pages: 9-10

IMF RESEARCH perspectives | IMF.org/researchbulletin 09

Resource misallocation—which occurs when economic

resources are not put to their best use—can arise for many

reasons, including market failures (e.g. monopolies cur tailing

production) or policy failures (e.g. India’s complex licensing

system, China’s support of state-owned enterprises, France’s

strict labor regulations).1 Structural reforms are often motivated

by the hope that shifting capital and labor to “better use”

in more productive rms will give a large boost to aggregate

productivity and GDP.

1 Misallocation is generally an unintended consequence of these policies.

Is Misallocation Really

MISMEASUREMENT?

When Models Meet the Micro Data

Cian Ruane

cruane@IMF.org