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Policy Distortions and Aggregate Productivity with Heterogeneous Plants

  • Richard Rogerson
  • Diego Restuccia

We formulate a version of the growth model in which production is carried out by heterogeneous plants and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across heterogeneous plants may be a significant 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 TFP, on the order of 30%. 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

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 69.

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Date of creation: 2004
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Handle: RePEc:red:sed004:69
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