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Cross-Country Differences in Productivity: The Role of Allocation and Selection

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  • Eric Bartelsman
  • John Haltiwanger
  • Stefano Scarpetta

Abstract

This paper investigates the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. Exploiting harmonized firm‑level data for a number of countries, we show that there is substantial and systematic cross‑country variation in the within-industry covariance between size and productivity. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and distortions. The model can be readily calibrated so that variations in the distribution of distortions allow matching the observed cross-country moments. We show that the differences in the distortions that account for the size-productivity covariance imply substantial differences in aggregate performance. (JEL D24, L25, O47)

Suggested Citation

  • 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 305-334, February.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:305-34
    Note: DOI: 10.1257/aer.103.1.305
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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    1. Price Discrimination and Bargaining: Empirical Evidence from Medical Devices (AER 2013) in ReplicationWiki
    2. Cross-Country Differences in Productivity: The Role of Allocation and Selection (AER 2013) in ReplicationWiki

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