IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Misallocation, Establishment Size, and Productivity

Listed author(s):
  • Pedro Bento
  • Diego Restuccia

We consider a tractable model of heterogeneous production units that features endogenous entry and productivity investment to assess the quantitative impact of policy distortions on aggregate output and establishment size. Relative to the standard factor misallocation framework, policy distortions featuring a positive productivity elasticity of distortions imply larger reductions in output through smaller investments in establishment productivity. A calibrated version of the model implies that when the productivity elasticity of distortions increases from 0.09 in the U.S. to 0.5 in India, aggregate output and average establishment size fall by 53 and 86 percent, compared to 37 and 0 percent in the standard factor misallocation model. Entry productivity investment and factor misallocation contribute equally to the reduction in output, whereas the effect of lower life-cycle productivity growth is fully offset by increased entry and reduced productivity dispersion. Establishment size differences in the model are consistent with evidence from a comprehensive dataset we construct on average establishment size in manufacturing using census data for 134 countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-567.pdf
File Function: Main Text
Download Restriction: no

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-567.

as
in new window

Length: Unknown pages
Date of creation: 27 Oct 2016
Handle: RePEc:tor:tecipa:tecipa-567
Contact details of provider: Postal:
150 St. George Street, Toronto, Ontario

Phone: (416) 978-5283

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Tasso Adamopoulos & Diego Restuccia, 2014. "The Size Distribution of Farms and International Productivity Differences," American Economic Review, American Economic Association, vol. 104(6), pages 1667-1697, June.
  2. Klaus Desmet & Stephen Parente, 2012. "The evolution of markets and the revolution of industry: a unified theory of growth," Journal of Economic Growth, Springer, vol. 17(3), pages 205-234, September.
  3. Rubini, Loris, 2014. "Innovation and the trade elasticity," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 32-46.
  4. Barseghyan, Levon & DiCecio, Riccardo, 2011. "Entry costs, industry structure, and cross-country income and TFP differences," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1828-1851, September.
  5. Nicolas Ziebarth, 2013. "Are China and India Backwards? Evidence from the 19th Century U.S. Census of Manufactures," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 86-99, January.
  6. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
  7. Haskel, J & Corrado, C & Jona-Lasinio, C & Iommi, M, 2012. "Intangible capital and growth in advanced economies: measurement methods and comparative results," Working Papers 9913, Imperial College, London, Imperial College Business School.
  8. Nicholas Bloom & Aprajit Mahajan & David McKenzie & John Roberts, 2010. "Why Do Firms in Developing Countries Have Low Productivity?," American Economic Review, American Economic Association, vol. 100(2), pages 619-623, May.
  9. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
  10. Jose Maria Da-Rocha & Marina Mendes Tavares & Diego Restuccia, 2014. "Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity," Working Papers tecipa-523, University of Toronto, Department of Economics.
  11. POSCHKE, Markus, 2011. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," Cahiers de recherche 08-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  12. Chang-Tai Hsieh & Peter J. Klenow, 2014. "The Life Cycle of Plants in India and Mexico," The Quarterly Journal of Economics, Oxford University Press, vol. 129(3), pages 1035-1084.
  13. Baldwin, John R. & Gu, Wulong & Lafrance, Amelie & Macdonald, Ryan, 2009. "Investment in Intangible Assets in Canada: R&D, Innovation, Brand, and Mining, Oil and Gas Exploration Expenditures," The Canadian Productivity Review 2009026e, Statistics Canada, Economic Analysis.
  14. Carol Coorado & Jonathan Haskel & Cecilia Iona Lasinio & Massimiliano Iommi, 2012. "Intangible Capital and Growth Strategies for Advanced Economies: Measurement and Comparative Results," Working Papers LuissLab 12101, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  15. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
  16. Corrado, Carol & Haskel, Jonathan & Iommi, Massimiliano & Jona-Lasinio, Cecilia, 2012. "Intangible Capital and Growth in Advanced Economies: Measurement and Comparative Results," CEPR Discussion Papers 9061, C.E.P.R. Discussion Papers.
  17. Ranasinghe, Ashantha, 2014. "Impact of policy distortions on firm-level innovation, productivity dynamics and TFP," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 114-129.
  18. Peter N. Gal, 2013. "Measuring Total Factor Productivity at the Firm Level using OECD-ORBIS," OECD Economics Department Working Papers 1049, OECD Publishing.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-567. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.