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Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity

Jose-Maria Da-Rocha, Diego Restuccia () and Marina Tavares

Working Papers from University of Toronto, Department of Economics

Abstract: What accounts for income per capita and total factor productivity (TFP) differences across countries? We study resource misallocation across heterogeneous production units in a general equilibrium model where establishment productivity and size are affected by policy distortions. We solve the model in closed form and show that the effect of policy distortions on aggregate productivity is substantially magnified when the distribution of (relative) establishment sizes is constant across economies as supported by some empirical evidence. In this case, more distorted economies feature higher establishment lifespan, amplifying the negative effect of distortions on establishment productivity growth. Policy distortions in this environment substantially reduce aggregate productivity, an effect that is 2.8-fold larger than the model with unrestricted relative size distribution.

Keywords: distortions; misallocation; investment; productivity; establishment size. (search for similar items in EconPapers)
JEL-codes: C02 C61 E0 E13 O11 O3 O41 O43 O5 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2022-10-28
New Economics Papers: this item is included in nep-dge and nep-eff
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Working Paper: Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity (2021) Downloads
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 (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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