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Misallocation, Establishment Size, and Productivity

Diego Restuccia () and Pedro Bento ()

No 1391, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We construct a new dataset using census, survey, and registry data from hundreds of sources to document a clear positive relationship between aggregate productivity and average establishment size in manufacturing across 134 countries. We rationalize this relationship using a standard model of reallocation among production units that features endogenous entry and productivity investment. The model connects small operational scales to the prevalence in poor countries of correlated distortions (the elasticity between wedges and establishment productivity). The model also rationalizes the finding in poor countries of low establishment-level productivity and low aggregate productivity investment. A calibrated version of the model implies that when correlated distortions change from 0.09 in the U.S. to 0.5 in India, establishment size and productivity fall by a factor of more than five, and aggregate productivity by a factor of three. These substantial size and productivity losses are large compared to the existing literature and more in line with actual data for the differences in size and productivity between India and the United States.

New Economics Papers: this item is included in nep-dge and nep-eff
Date: 2015
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Related works:
Journal Article: Misallocation, Establishment Size, and Productivity (2017) Downloads
Working Paper: Misallocation, Establishment Size, and Productivity (2016) Downloads
Working Paper: Misallocation, Establishment Size, and Productivity (2016) Downloads
Working Paper: Misallocation, Establishment Size, and Productivity (2016) Downloads
Working Paper: Misallocation, Establishment Size, and Productivity (2015) Downloads
Working Paper: Misallocation, Establishment Size, and Productivity (2014) Downloads
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