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Cross Country Differences in Productivity: The Role of Allocative Efficiency

  • Stefano Scarpetta:

    (Vrije Universiteit Amsterdam and Tinbergen Institute)

  • John Haltiwanger

    (University of Maryland, IZA, and NBER)

  • Eric Bartelsman:

    (OECD and IZA.)

There is a growing body of evidence suggesting that healthy, market economies exhibit both static and dynamic allocative efficiency, whereby more productive businesses have a larger market share and reallocation of outputs and inputs within sectors shifts resources from less to more productive businesses (e.g. Baily, Hulten, and Campbell (1992), Bartelsman, Haltiwanger, and Scarpetta (2004), Foster, Haltiwanger, and Krizan (2006), Olley and Pakes (1996)). Because there are no welfare or productivity gains to be obtained from resource reallocation in a frictionless economy (e.g. Hulten (1978); Levinsohn and Petrin (2006)), theoretical and empirical research is needed to model and quantify the frictions that yield a connection between reallocation and productivity. In this paper, we consider models that feature taste and technology differences so that a market with free entry sustains firms operating within a wide range of productivity (e.g, Restuccia and Rogerson (2004), and Hsieh and Klenow (2006)). We then investigate to what extent distortions in signals to decision makers generate model outcomes that track patterns of resource allocation and productivity observed across countries, sectors and over time.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 134.

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Date of creation: 2007
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Handle: RePEc:red:sed007:134
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  1. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 511-18, October.
  2. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  3. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2004. "The Effect of Structural Reforms on Productivity and Profitability Enhancing Reallocation: Evidence from Colombia," NBER Working Papers 10367, National Bureau of Economic Research, Inc.
  4. Eric Bartelsman & Stefano Scarpetta & Fabiano Schivardi, 2003. "Comparative Analysis of Firm Demographics and Survival: Micro-Level Evidence for the OECD Countries," OECD Economics Department Working Papers 348, OECD Publishing.
  5. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  6. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  7. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  8. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  9. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  10. repec:dgr:uvatin:20040114 is not listed on IDEAS
  11. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  12. Chad Syverson, 2004. "Product Substitutability and Productivity Dispersion," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 534-550, May.
  13. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  14. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  15. Bartelsman, Eric & Haltiwanger, John & Scarpetta1, Stefano, 2004. "Microeconomic evidence of creative destruction in industrial and developing countries," Policy Research Working Paper Series 3464, The World Bank.
  16. repec:dgr:uvatin:2004114 is not listed on IDEAS
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