Misallocation, Establishment Size, and Productivity†

Misallocation, Establishment Size, and Productivity† AbstractWe consider a model of heterogeneous production units with endogenous entry and productivity investment to assess the quantitative impact of policy distortions: when the productivity elasticity of distortions increases from 0.09 in the United States to 0.5 in India, aggregate output and average establishment size fall by 53 and 86 percent (37 and 0 percent in the standard factor misallocation model). Entry productivity and factor misallocation contribute equally to the reduction in output, whereas lower life-cycle productivity growth is fully offset by increased entry and reduced productivity dispersion. Establishment size differences are consistent with evidence from a new comprehensive cross-country dataset. (JEL D92, E23, E24, L25, L60, O10, O14) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Misallocation, Establishment Size, and Productivity†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7715
D.O.I.
10.1257/mac.20150281
Publisher site
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Abstract

AbstractWe consider a model of heterogeneous production units with endogenous entry and productivity investment to assess the quantitative impact of policy distortions: when the productivity elasticity of distortions increases from 0.09 in the United States to 0.5 in India, aggregate output and average establishment size fall by 53 and 86 percent (37 and 0 percent in the standard factor misallocation model). Entry productivity and factor misallocation contribute equally to the reduction in output, whereas lower life-cycle productivity growth is fully offset by increased entry and reduced productivity dispersion. Establishment size differences are consistent with evidence from a new comprehensive cross-country dataset. (JEL D92, E23, E24, L25, L60, O10, O14)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2017

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