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On the Measure of Distortions

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  • Hugo A. Hopenhayn

    (UCLA)

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    Abstract

    The paper considers formally the mapping from distortions to the allocations of resources across firms to aggregate productivity. TFP gaps are characterized as the integral of a strictly concave function with respect to an employment-weighted measure of distortions. Size related distortions are shown to correspond to a mean preserving spread of this measure, explaining the stronger effects on TFP found in the literature. An empirical lower bound on distortions based on size distribution of firms is derived and analyzed. The effect of curvature on the impact and measurement of distortions is also considered.

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    File URL: http://www.economicdynamics.org/meetpapers/2013/paper_189.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 189.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:189

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    1. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
    2. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
    3. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-34, February.
    4. Francisco J. Buera & Joseph Kaboski & Yongseok Shin, 2009. "Finance and Development: A Tale of Two Sectors," NBER Working Papers 14914, National Bureau of Economic Research, Inc.
    5. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
    6. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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