Resource Reallocation and Productivity Growth**I am indebted to I. Adelman, L. E. Westphal, and J. Williamson for helpful comments.

Publisher Summary This chapter discusses the relation between productivity growth and changes in the sectoral composition of production and factor use in the face of disequilibrium in factor markets. The usual measures of allocation effects ignore all inputs other than labor and take the average product of labor as their productivity indicator. The effect of resource reallocation can be identified only at the aggregate level. When total output growth is aggregated from the sectoral results, there is no room for resource reallocation as an independent source of growth. The narrowing of productivity differences can explain acceleration in growth, the disappearance of the slack can contribute to a one-time productivity slowdown. The estimated contributions of structural change to growth probably underestimate the impact of resource shifts. Another potential source of underestimation of the importance of resource shifts lies in the static and partial nature of the measures. Thus, the level and rate of growth of productivity in the sector expanding inputs and output are independent of the expansion process itself, which rules out the possibility of various economies of scale in manufacturing. A reallocation of resources from sectors with low returns to those with high returns would reflect a reduction in the misallocation of resources and an improvement in the average quality of inputs. Rapid shifts may contribute to accelerate growth, but these in turn may not be feasible without high rates of growth and investment.