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Policy Distortions and Aggregate Productivity with Heterogeneous Plants

Author

Listed:
  • Diego Restuccia

    (University of Toronto)

  • Richard Rogerson

    (Arizona State University)

Abstract

We formulate a version of the growth model in which production is carried out by heterogeneous establishments and calibrate it to U.S. data. In the context of this model we argue that differences in the allocation of resources across establishments that differ in productivity may be an important factor in accounting for cross-country differences in output per capita. In particular, we show that policies which create heterogeneity in the prices faced by individual producers can lead to sizeable decreases in output and measured total factor productivity (TFP) in the range of 30 to 50 percent. We show that these effects can result from policies that do not rely on aggregate capital accumulation or aggregate relative price differences. More generally, the model can be used to generate differences in capital accumulation, relative prices, and measured TFP. (Copyright: Elsevier)

Suggested Citation

  • Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  • Handle: RePEc:red:issued:07-48
    DOI: 10.1016/j.red.2008.05.002
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    More about this item

    Keywords

    Plant heterogeneity; productivity; policy distortions.;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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