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

  • Eric Bartelsman
  • John Haltiwanger
  • Stefano Scarpetta

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)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 1 (February)
Pages: 305-34

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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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