Cross-Country Differences in Productivity: The Role of Allocation and Selection
Eric Bartelsman (),
John Haltiwanger and
Stefano Scarpetta ()
No 4578, IZA Discussion Papers from Institute for the Study of Labor (IZA)
This paper combines different strands of the productivity literature to investigate the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. On the one hand, a growing body of empirical research has been relating cross-country differences in key economic outcomes, such as productivity or output per capita, to differences in policies and institutions that shape the business environment. On the other hand, a branch of empirical research has attempted to shed light on the determinants of productivity at the firm-level and the evolution of the distribution of productivity across firms within each industry. In this paper, we exploit a rich source of data with harmonized statistics on firm level variation within industries for a number of countries. Our key empirical finding is that there is substantial variation in the within-industry covariance between size and productivity across countries, and this variation is affected by the presence of idiosyncratic distortions. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. We show that the model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance.
Keywords: firm heterogeneity; productivity; allocation of resources; distortions (search for similar items in EconPapers)
JEL-codes: E02 L11 L16 L2 L25 O4 O57 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff and nep-int
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Published in: American Economic Review, 2013, 103 (1), 305-334
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Journal Article: Cross-Country Differences in Productivity: The Role of Allocation and Selection (2013)
Working Paper: Cross-Country Differences in Productivity: The Role of Allocation and Selection (2009)
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