Why Do Inefficient Firms Survive? Management and Economic Development
AbstractThere are large and persistent productivity differences across firms within narrowly defined industries. This is especially true in poor countries. Why do productivity differences decline as the economy develops? In this paper I propose a theory where productivity differences exist because different firms use different technologies. The negative correlation between economic development and productivity dispersion occurs because the set of economically viable techniques shrinks as the economy develops. My mechanism stresses the role of managerial inputs. If managers are essential to increase the scale of production, inefficient techniques survive in managerial-scarce economies as productive firms do not have the means to replace them. As the aggregate supply of managers increases, efficient firms expand, best-practice technologies dominate the industry and productivity differences decline. Using firm-level panel data from Chile, I test both cross-sectional and time-series implications of the theory and evaluate different approaches of how to introduce management in firmsâ€™ production function.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 497.
Date of creation: 2012
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-DEV-2013-04-13 (Development)
- NEP-EFF-2013-04-13 (Efficiency & Productivity)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Allan Collard-Wexler & John Asker & Jan De Loecker, 2011.
"Productivity Volatility and the Misallocation of Resources in Developing Economies,"
11-13, New York University, Leonard N. Stern School of Business, Department of Economics.
- Allan Collard-Wexler & John Asker & Jan De Loecker, 2011. "Productivity Volatility and the Misallocation of Resources in Developing Economies," NBER Working Papers 17175, National Bureau of Economic Research, Inc.
- Asker, John & Collard-Wexler, Allan & De Loecker, Jan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
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