Efficient Reallocation and Productivity during Commodity Price Cycles
This paper investigates how low-frequency commodity price fluctuations trigger a reallocation process that endogenously generates a decline in manufacturing productivity. I build a model in which firms with heterogeneous productivity decide between two technologies with different capital intensities and choose whether to become exporters. During a commodity boom, exporters lose market share due to exchange rate appreciation. Moreover, a commodity boom increases the relative cost of capital, which is used intensively in resource production, leading to additional reallocation within manufacturing from more capital intensive to less capital-intensive manufacturing firms. I calibrate the model to the Chilean economy and show that it can match the relevant micro and macro moments. When fed with a realistic commodity price cycle, the baseline model generates about half of the productivity decline observed in the data, a figure that is two times larger than in a counterfactual economy with no technology decision.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Productive Efficiency, Commodity Price, Production and Business Cycle, F41 - Open Economy Macroeconomics, D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity, Q33 - Resource Booms, |
| Online Access: | http://dx.doi.org/10.18235/0001887 https://publications.iadb.org/en/efficient-reallocation-and-productivity-during-commodity-price-cycles |
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