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The Aggregate and Complementary Impact of Micro Distortions

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  • Raphael Bergoeing
  • Norman V. Loayza
  • Facundo Piguillem

Abstract

We explore how regulatory or institutional distortions to resource reallocation limit the ability of developing countries to adopt new technologies. An efficient economy innovates quickly; but when the economy is unable to redeploy resources away from inefficient uses, technological adoption becomes sluggish, growth is reduced, and income lags further behind the leading economy. We use a firm dynamics model to analyze income gaps between the U.S. and several developing countries. For the median country, the model accounts for one-third of the income gap with respect to the U.S., with 60% of the simulated gap explained by firm renewal distortions taken individually and 40% by their interaction.

Suggested Citation

  • Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," Working Papers wp338, University of Chile, Department of Economics.
  • Handle: RePEc:udc:wpaper:wp338
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    Cited by:

    1. Jose Asturias & Sewon Hur & Timothy J. Kehoe & Kim J. Ruhl, 2023. "Firm Entry and Exit and Aggregate Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(1), pages 48-105, January.
    2. D׳Erasmo, Pablo N. & Moscoso Boedo, Hernan J. & Şenkal, Aslı, 2014. "Misallocation, informality, and human capital: Understanding the role of institutions," Journal of Economic Dynamics and Control, Elsevier, vol. 42(C), pages 122-142.
    3. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
    4. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
    5. Elías Albagli & Mario Canales & Chad Syverson & Matías Tapia & Juan Wlasiuk, 2020. "Productivity Gaps and Job Flows: Evidence from Censal Microdata," Working Papers Central Bank of Chile 895, Central Bank of Chile.

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