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 policy distortions have a substantial negative effect on establishment productivity growth, average establishment size, and aggregate productivity. Calibrating a distorted benchmark economy to U.S. data, we find that empirically reasonable variations in distortions generate reductions in aggregate TFP of more than 24 percent while slightly increasing concentration in the establishment size distribution. If distortions in addition lower the exit rate of incumbent establishments, as supported by some empirical evidence, the aggregate TFP loss doubles to 48 percent.

Keywords: distortions; misallocation; investment; productivity; establishment size. (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: 2023-03-31
New Economics Papers: this item is included in nep-des, nep-dge, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://www.economics.utoronto.ca/public/workingPapers/tecipa-750.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 (2022)
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2021)
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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