Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity

Jose-Maria Da-Rocha, Diego Restuccia and Marina Tavares
Authors registered in the RePEc Author Service: Jose Maria Da Rocha

Working Papers from University of Toronto, Department of Economics

Abstract: What accounts for income per capita and total factor productivity (TFP) differences across countries? We study resource misallocation across heterogeneous production units in a general equilibrium model where establishment productivity and size are affected by policy distortions. We solve the model in closed form and show that the effect of policy distortions hinges crucially on the size distribution of establishments approximately satisfying Zipf's law, an empirical phenomenon that can be interpreted to imply that misallocation is low or that the establishments' lifespan is long, or both. More distorted economies feature higher establishment lifespan which amplifies the negative effect of distortions on productivity and establishment growth. Policy distortions substantially reduce aggregate TFP, an effect that is 2.8-fold larger than in the model with unrestricted size distribution and 6.9-fold larger with perfectly correlated distortions.

Keywords: distortions; misallocation; investment; productivity; Zipf's law. (search for similar items in EconPapers)
JEL-codes: C02 C61 E0 E13 O11 O3 O41 O43 O5 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2021-08-03
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.economics.utoronto.ca/public/workingPapers/tecipa-702.pdf Main Text (application/pdf)

Related works:
Journal Article: Policy distortions and aggregate productivity with endogenous establishment-level productivity (2023)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2023)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2022)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2019)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2017)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2017)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2016)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2014)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2014)
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