Herrera, Lugauer, and Chen published in European Economic Review

Ana Maria Herrera and Steve Lugauer, along with Ph.D Gatton alum Guowen Chen, had their paper entitled "Policy and Misallocation," accepted for publication at the European Economic Review.

Using a rich dataset of Chinese firms, we investigate the effect of industrial policies on resource misallocation. Our difference-in-difference model estimates provide evidence that government policies increased the dispersion of revenue productivity across firms in four-digit industries targeted for support relative to other industries, suggesting a negative impact on aggregate TFP. Estimates of a changes-in-changes model reveal that the policies had a heterogeneous impact across the productivity distribution of firms in supported industries. Furthermore, we show that the heightened misallocation is related to the way in which the Chinese government doled out support through subsidies for a subset of firms.