Explaining Cross-Country Productivity Differences in Retail Trade

David Lagakos

Journal of Political Economy, 2016, vol. 124, issue 2, 579 - 620

Abstract: Many macroeconomists argue that productivity is low in developing countries because of frictions that impede the adoption of modern technologies. I argue that in the retail trade sector, developing countries rationally choose technologies with low measured labor productivity. My theory is that the adoption of modern retail technologies is optimal only when household ownership of complementary durable goods, such as cars, is widespread. Because income is low in the developing world, households own few such durables. The theory implies that policies that increase measured retail productivity do not necessarily increase welfare.

Date: 2016
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