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Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity

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

Working Papers from University of Toronto, Department of Economics

Abstract: What accounts for differences in output per capita and total factor productivity (TFP) across countries? Empirical evidence points to resource misallocation across heterogeneous production units as an important factor. We study resource misallocation in a model where establishment-level productivity is endogenous and responds to the same policy distortions that create misallocation. In this framework, policy distortions not only misallocate resources across a given set of productive units (static effect), but also create disincentives for productivity improvement (dynamic effect) thereby affecting the productivity distribution and further contributing to lower aggregate output and productivity. The dynamic effect is substantial quantitatively. Reducing the dispersion in revenue productivity in the model by 25 percentage points to the level of the U.S. benchmark implies an increase in aggregate output and TFP by a factor of 2.9-fold. Improved resource allocation accounts for 42 percent of the gain, whereas the change in the productivity distribution accounts for the remaining 58 percent.

Keywords: distortions; misallocation; investment; endogenous productivity; establishments. (search for similar items in EconPapers)
JEL-codes: O1 O4 E0 E1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eff, nep-mac and nep-tid
Date: 2017-04-08
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Related works:
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2019) Downloads
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2017) Downloads
Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2016) Downloads
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) Downloads
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