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The Aggregate Impact of Micro Distortions: Complementarities Matter

  • Raphael Bergoeing

    (University of Chile)

  • Norman V. Loayza

    (The World Bank)

  • Facundo Piguillem

    (EIEF)

We explore how developmental and regulatory impediments to resource reallocation limit the ability of developing countries to adopt technologies: an efficient economy quickly innovates; but when the economy is unable to fully use resources liberated by closing firms, or when policy distortions deter firm dynamics, then technological adoption becomes sluggish, and growth is reduced. Our theory accounts for 75% of the income (GNI) gap between Latin America and the U.S. Half of this simulated gap is explained by the barriers individually, the other half by their complementarity. Thus, the benefits from market reforms are largely diminished if distortions, developmental as well as regulatory, are not uniformly eliminated.

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File URL: http://www.eief.it/files/2012/09/wp-03-the-aggregate-impact-of-micro-distortions_complementarities-matter.pdf
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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1003.

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Length: 38 pages
Date of creation: 2010
Date of revision: Feb 2009
Handle: RePEc:eie:wpaper:1003
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  1. Raphael Bergoeing & Norman Loayza & Andrea Repetto, 2004. "Slow Recoveries," Documentos de Trabajo 188, Centro de Economía Aplicada, Universidad de Chile.
  2. Samaniego, Roberto M., 2006. "Industrial subsidies and technology adoption in general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1589-1614.
  3. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
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