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On Average Establishment Size across Sectors and Countries

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  • Pedro Bento
  • Diego Restuccia

Abstract

We construct a new dataset for the average employment size of establishments across sectors and countries from hundreds of sources. Establishments are larger in manufacturing than in services, and in each sector they are larger in richer countries. The cross-country income elasticity of establishment size is remarkably similar across sectors, about 0.3. We discuss these facts in light of several prominent theories of development such as entry costs and misallocation. We then quantify the sectoral and aggregate impact of entry costs and misallocation in an otherwise standard two-sector model of structural transformation with endogenous firm entry and firm-level productivity. We find that observed measures of misallocation account for the entire range of establishment-size differences across sectors and countries and almost 50 percent of the difference in non-agricultural GDP per capita between rich and poor countries.

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  • Pedro Bento & Diego Restuccia, 2018. "On Average Establishment Size across Sectors and Countries," Working Papers tecipa-612, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-612
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    Cited by:

    1. Peter Bauer & Igor Fedotenkov & Aurelien Genty & Issam Hallak & Peter Harasztosi & David Martinez Turegano & David Nguyen & Nadir Preziosi & Ana Rincon-Aznar & Miguel Sanchez Martinez, 2020. "Productivity in Europe: Trends and drivers in a service-based economy," JRC Working Papers JRC119785, Joint Research Centre (Seville site).
    2. Andrew Kerr & Bruce McDougall, 2020. "What is a firm census in a developing country? An answer from Ghana," SALDRU Working Papers 262, Southern Africa Labour and Development Research Unit, University of Cape Town.
    3. Pedro Bento & Diego Restuccia, 2019. "The Role of Nonemployers in Business Dynamism and Aggregate Productivity," Working Papers tecipa-640, University of Toronto, Department of Economics.
    4. Perez Sebastian,Fidel & Steinbuks,Jevgenijs & Feres,Jose Gustavo & Trotter,Ian Michael, 2020. "Electricity Access and Structural Transformation : Evidence from Brazil's Electrification," Policy Research Working Paper Series 9182, The World Bank.
    5. Pedro Bento, 2020. "Competition, Innovation, and the Number of Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 275-298, July.
    6. Christian Saborowski & Florian Misch, 2019. "Firm Size, Life Cycle Dynamics and Growth Constraints: Evidence from Mexico," IMF Working Papers 2019/087, International Monetary Fund.
    7. Bento, Pedro & Ranasinghe, Ashantha, 2020. "Financial Frictions, Borrowing Costs, and Firm Size Across Sectors," Working Papers 2020-7, University of Alberta, Department of Economics.
    8. Marcela Eslava & John C. Haltiwanger, 2020. "The Size and Life-cycle Growth of Plants: The Role of Productivity, Demand and Wedges," NBER Working Papers 27184, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    establishment size; manufacturing; services; distortions; misallocation; productivity.;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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