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Monopoly rights and Cross-country TFP


  • Berthold Herrendorf
  • Arilton Teixeira


We ask for which part of the observed cross-country differences in the level of per-capita income monopoly rights can account. We answer this question in a calibrated growth model with capital. Monopoly rights in the capital-producing sector shield labor market insiders from the competition by outsiders and permit coalitions of these insiders to choose inefficient technologies or working practices. We find that monopoly rights can reduce the level of per-capita income by quantitatively substantial amounts that are much larger than previously claimed. Moreover, the effects of monopoly rights on the price of capital goods relative to consumption goods and the investment share in output are quantitatively consistent with the Penn World Tables. The key to our findings is that monopoly rights in the capital-producing sector do not only reduce total factor productivity there but also increase the relative price of capital. This reduces the capital-labor ratio in the rest of the economy.

Suggested Citation

  • Berthold Herrendorf & Arilton Teixeira, 2004. "Monopoly rights and Cross-country TFP," 2004 Meeting Papers 17, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:17

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    References listed on IDEAS

    1. Van Biesebroeck, Johannes, 2005. "Firm Size Matters: Growth and Productivity Growth in African Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 53(3), pages 545-583, April.
    2. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
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    5. Herrendorf, Berthold & Teixeira, Arilton, 2003. "Monopoly Rights can Reduce Income Big Time," CEPR Discussion Papers 3854, C.E.P.R. Discussion Papers.
    6. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
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    8. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
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    10. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
    11. Per Krusell & José-Víctor Ríos-Rull, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 301-329.
    12. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
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    More about this item


    TFP; Monopoly Rights; Vested Interests;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General


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