This paper studies productivity growth and input reallocation across plants, and scrutinises the wedges between the marginal product of inputs and marginal costs hindering the allocative efficiency of factor inputs. It finds deterioration of aggregate productivity growth arising from the poor performance of surviving firms. Under Constant Elasticity of Substitution (CES) and Hyperbolic Absolute Risk Aversion (HARA) preferences, technical efficiency weakened further and reallocation strengthened. Technical efficiency interaction with capital-intensity reduced labour distortions, but remained indifferent to capital distortions. An increase in capital-intensity for constrained plants raised labour distortions by 4.95% and reduced capital distortions by 45.59%. An increase in capital-intensity for unconstrained firms reduced capital distortionsby 36.84%.
