This paper investigates the impact of resource misallocation on aggregate total factor productivity (TFP) in China and India compared to the United States. Using micro data on manufacturing establishments, the authors quantify the extent of misallocation in these countries. They find significant gaps in the marginal products of labor and capital across plants within narrowly-defined industries in both China and India compared to the U.S. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., they calculate manufacturing TFP gains of 30-50% in China and 40-60% in India. The paper uses a standard model of monopolistic competition with heterogeneous firms to show how distortions that drive wedges between the marginal products of capital and labor across firms will lower aggregate TFP. A key result is that revenue productivity (the product of physical productivity and a firm’s output price) should be equated across firms in the absence of distortions. The authors use this framework to measure the contribution of resource misallocation to aggregate manufacturing productivity in China and India versus the U.S. They find that moving to "U.S. efficiency" would increase TFP by 30-50% in China and 40-60% in India. The output gains would be roughly twice as large if capital accumulated in response to aggregate TFP gains. They also find that deteriorating allocative efficiency may have shaved 2% off Indian manufacturing TFP growth from 1987 to 1994, whereas China may have boosted its TFP 2% per year over 1998-2005 by winning its distortions. In both India and China, larger plants within industries appear to have higher marginal products, suggesting they should expand at the expense of smaller plants. The pattern is much weaker in the U.S. The authors also discuss the implications of measurement error and policy distortions on their results. They find that measurement error in the remaining 1% tails could well be important, but does not come close to accounting for the big gains from equalizing TFPR. They also find that TFPR is systematically related to ownership in China and India, with state-owned plants exhibiting lower TFPR and foreign-owned plants having higher TFPQ but lower TFPR. They also find that lower TFPR is associated with a higher probability of plant exit in all three countries. The authors conclude that resource misallocation is a significant factor in the TFP differences between China, India, and the U.S.This paper investigates the impact of resource misallocation on aggregate total factor productivity (TFP) in China and India compared to the United States. Using micro data on manufacturing establishments, the authors quantify the extent of misallocation in these countries. They find significant gaps in the marginal products of labor and capital across plants within narrowly-defined industries in both China and India compared to the U.S. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., they calculate manufacturing TFP gains of 30-50% in China and 40-60% in India. The paper uses a standard model of monopolistic competition with heterogeneous firms to show how distortions that drive wedges between the marginal products of capital and labor across firms will lower aggregate TFP. A key result is that revenue productivity (the product of physical productivity and a firm’s output price) should be equated across firms in the absence of distortions. The authors use this framework to measure the contribution of resource misallocation to aggregate manufacturing productivity in China and India versus the U.S. They find that moving to "U.S. efficiency" would increase TFP by 30-50% in China and 40-60% in India. The output gains would be roughly twice as large if capital accumulated in response to aggregate TFP gains. They also find that deteriorating allocative efficiency may have shaved 2% off Indian manufacturing TFP growth from 1987 to 1994, whereas China may have boosted its TFP 2% per year over 1998-2005 by winning its distortions. In both India and China, larger plants within industries appear to have higher marginal products, suggesting they should expand at the expense of smaller plants. The pattern is much weaker in the U.S. The authors also discuss the implications of measurement error and policy distortions on their results. They find that measurement error in the remaining 1% tails could well be important, but does not come close to accounting for the big gains from equalizing TFPR. They also find that TFPR is systematically related to ownership in China and India, with state-owned plants exhibiting lower TFPR and foreign-owned plants having higher TFPQ but lower TFPR. They also find that lower TFPR is associated with a higher probability of plant exit in all three countries. The authors conclude that resource misallocation is a significant factor in the TFP differences between China, India, and the U.S.