Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity / José-María Da-Rocha, Marina Mendes Tavares, Diego Restuccia.

Format:

Book

Author/Creator:

Da-Rocha, José-María.

Contributor:

National Bureau of Economic Research.

Mendes Tavares, Marina.

Restuccia, Diego.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23339.

NBER working paper series no. w23339

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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 policy distortions have a substantial negative effect on establishment productivity growth, average establishment size, and aggregate productivity. Calibrating a distorted benchmark economy to U.S. data, we find that empirically reasonable variations in distortions generate reductions in aggregate TFP of more than 24 percent while slightly increasing concentration in the establishment size distribution. If distortions in addition lower the exit rate of incumbent establishments, as supported by some empirical evidence, the aggregate TFP loss doubles to 48 percent.

Notes:

Print version record

April 2017.