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At the macro level, productivity is driven by technology and the efficiency of resource allocation, as outcomes of firms’ decision making. The relatively high level of resource misallocation in India’s formal manufacturing sector is well documented. We build on this research to further investigate the drivers of misallocation, exploiting micro-level variation across Indian states. We find that states with less rigid labor markets have lesser misallocation. We also examine the interaction of labor market rigidities with informality which is a key feature of India’s labor markets. Our results suggest that reducing labor market rigidities in states with high informality has a net positive effect on aggregate productivity.

Labor --- Macroeconomics --- Production and Operations Management --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Institutions and Growth --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Economic Growth and Aggregate Productivity: General --- Labor Economics Policies --- Labor Economics: General --- Macroeconomics: Production --- Labor Contracts --- Labour --- income economics --- Total factor productivity --- Labor market reforms --- Productivity --- Employment protection --- Industrial productivity --- Manpower policy --- Labor economics --- India

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Inflationary pressures have intensified in the Gulf Cooperation Council (GCC) in 2021-2022, mainly driven by a pick-up in tradeable goods inflation. Despite this increase, inflation remained relatively contained as compared to regional comparators. This paper aims to provide a comprehensive analysis of inflation dynamics in the region, with a focus on external factors because of GCC’s high reliance on international trade. Using a Global Vector Autoregressive model with quarterly data from 1987 to 2022, we find that external factors such as the imported inflation from main trading partners, mainly driven by China, and nominal effective exchange rate (NEER) are the main drivers of inflation in the GCC region. Additionally, we find that the direct pass-through of international commodity price shocks such as oil and raw agricultural materials is somewhat limited, after controlling for trading partners’ inflation, which can be explained by the prevalence of subsidies and administered prices in the region. Overall, since external factors are the main drivers of domestic inflation in the GCC, an increased focus on diversification, promoting food security, and ensuring prudent central bank policies, including through effective liquidity management frameworks, can play a key role in managing this impact.

Agriculture: Aggregate Supply and Demand Analysis --- Currency crises --- Currency --- Deflation --- Economic & financial crises & disasters --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Economics of specific sectors --- Economics --- Economics: General --- Energy: Demand and Supply --- Food prices --- Foreign Exchange --- Foreign exchange --- Inflation --- Informal sector --- Macroeconomics --- Nominal effective exchange rate --- Oil prices --- Open Economy Macroeconomics --- Price Level --- Prices --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Supply and demand --- Supply shocks

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We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse; (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity; (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.

China, People's Republic of --- Exports and Imports --- Finance: General --- Production and Operations Management --- Trade: General --- Empirical Studies of Trade --- Economic Growth of Open Economies --- Globalization: Macroeconomic Impacts --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Economic Growth and Aggregate Productivity: General --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Macroeconomics: Production --- Trade Policy --- International Trade Organizations --- General Financial Markets: General (includes Measurement and Data) --- Macroeconomics --- International economics --- Finance --- Productivity --- Exports --- Imports --- Trade liberalization --- Competition --- Production --- International trade --- Financial markets --- Industrial productivity --- Commercial policy