Resource misallocation in Portugal

: between sector misallocation and intersectoral linkages

Abstract

Resource misallocation helps to explain cross-country per capita income differences as the result of differences in how economies allocate their available resources. In poorer economies additional distortions drive the equilibrium allocation further away from the optimal allocation, thus lowering aggregate output. The present dissertation applies the misallocation hypothesis to Portugal between 2000 and 2014/2017. In particular, it focuses on how distortions affect the allocation of primary inputs over the various industries, in an input-output economy. Portugal’s allocative efficiency performance is then compared to Germany’s.The results suggest that if sector primary input distortions were fully eliminated, on average, GDP could have been more than 20 percent above the observed level, in Portugal. In Germany, the average gain was 13 percent. However, allocative efficiency (ratio between GDP and undistorted GDP), in Portugal, improved, from 0.80 in 2000 to 0.86 in 2014. Meanwhile, Germany’s allocative efficiency remained broadly unchanged.The dissertation explores the role of the input-output network for these results: first, keeping the calibration but closing the intermediate goods channel; second, modelling GDP as the sum of sector’s value-added, which allows the use of available data up to 2017. The first suggests that the input-output network may have amplified the misallocation losses about 1.5 times. The second finds an equivalence between the input-output and the value-added frameworks, underlying that there is not an unique way to assess the importance of the input-output network and that the appropriate approach depends on the particular question.

Date of Award	29 Jan 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Isabel Correia (Supervisor)