Total factor productivity and efficiency in resource allocation: Perú 2011-2019

Based on consolidated databases from the Annual Economic Survey of the National Institute of Statistics and Informatics from 2011 to 2019 for formal companies, the Cobb-Douglas and Translogarithmic (Translog) production functions are estimated using the Ackerberg, D., K. Caves, and G. Frazer (2015) model, obtaining capital and labor product elasticities, and the total factor productivity (TFP) of the Peruvian economy at firm and sectoral levels. The main findings of the Translog specification compared to that of the Cobb-Douglas are as follows: i) the sectoral production output elasticities are all positive; ii) it captures production factors' output elasticities' intrasectoral variability; iii) the most capital intensive sectors such as Electricity and Hydrocarbons are the most productive; iv) TFP is positive for all sectors in the balanced panel data sample; v) the balanced panel data TFP median is higher in all sectors than that of the unbalanced panel data, considering that the former contains only large and medium-sized companies. Likewise, in relation to the balanced panel data, both with the Cobb-Douglass specification and with the Translog, the PTF has stagnated from 2011 to 2019 with an average annual growth of 0.2 percent in absolute value. Then, TFP is decomposed using the Olley-Pakes method to measure the efficiency in resource allocation in the economy. This decomposition reveals that there is inefficiency in resource allocation in the Peruvian economy due to the low proportion (less than 40 percent) of economic activity in each sector allocated to the most productive firms. Finally, a neo-Schumpeterian conceptual framework, developed by the recent 2025 Nobel Prize in Economic Sciences winners, Phillipe Aghion and Peter Howitt, is applied to estimate the TFP growth rate determinants at the firm level and it confirms: i) the impact of the firm size growth on the TFP growth; ii) the interrelation of frontier firms and laggard firms based on the pass-through and catch-up hypotheses for most economic sectors; iii) the impact of 3 Kauffman and Kraay (2024) worldwide governance indicators.