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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: 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 misallocation in a general equilibrium model of establishment productivity where the distribution of productivity is characterized in closed form 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 thereby altering the productivity distribution and equilibrium prices (dynamic effect), further lowering aggregate output and TFP. The dynamic effect is substantial contributing to a doubling of the static misallocation effect. Reducing the dispersion in distortions by 25 percentage points to the level of the U.S. benchmark economy implies an increase in relative aggregate output of 123 percent, where 54 percent arises from factor misallocation (static effect).

Keywords: distortions; misallocation; investment; endogenous productivity; establishments. (search for similar items in EconPapers)
JEL-codes: O11 O3 O41 O43 O5 E0 E13 C02 C61 (search for similar items in EconPapers)
Date: 2019-02-07
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Related works:
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 (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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