An Empirical Analysis of Firm-Level Productivity, Perceptions, and Misallocation in the South Asian Region

161 pagesLimited access to firm-level data on the South Asian Region (SAR) that is comparable both across countries and time has contributed to the dearth of productivity research in this area. Using cross-sectional data from the World Bank Enterprise Survey, this study aims to calculate accurate measures of total factor productivity (TFP) for seven SAR countries. Utilizing these measures, we then employ a logistic and Tobit regression framework to determine how a firm’s perceptions of their country’s financing, governmental, and infrastructural institutions are affected by varying levels of productivity. Finally, we calculate the price wedges on labor, capital, and materials for each industry in this region to determine the level of factor misallocation. Our findings show that TFP is an important determinant of firm-level behavior, such as the decision to export, and also serves as an important predictor of state-business relationships. Specifically, with increasing levels of TFP, both the number of required meetings with tax officials and the likelihood of attempting to secure a government contract decreases significantly. We also find that there is a strong correlation between higher firm-level TFP and the likelihood of a firm perceiving its governmental institutions as more of an obstacle. Finally, our results show that there is a high degree of misallocation in capital markets, followed by labor and materials markets. The results from this study lend themselves to interesting policy implications, especially for governments that wish to promote higher levels of trade and state-business cooperation, and also decrease the degree of factor misallocation in specific industries