Policy Distortions and Aggregate Productivity with Heterogeneous Plants

We formulate a version of the growth model in which production is carried out by heterogeneous plants and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across heterogeneous plants may be an important factor in accounting for cross-country differences in output per capita. In particular, we show that policies which create heterogeneity in the prices faced by individual producers can lead to sizeable decreases in output and measured TFP in the range of 30 to 50 percent. We show that these effects can result from policies that do not rely on aggregate capital accumulation or aggregate relative price differences. More generally, the model can be used to generate differences in capital accumulation, relative prices, and measured TFP.

[1]  Ellen R. McGrattan,et al.  The Poverty of Nations: A Quantitative Exploration , 1996 .

[2]  J. Tybout,et al.  Manufacturing Firms in Developing Countries: How Well Do They Do, and Why? , 1998 .

[3]  Le Verne Beales.  The Census of Manufactures , 1930 .

[4]  Yi Xu,et al.  Macroeconomic Implications of Size-Dependent Policies , 2007 .

[5]  Hugo Hopenhayn,et al.  Job Turnover and Policy Evaluation: A General Equilibrium Analysis , 1993, Journal of Political Economy.

[6]  Nina Pavcnik,et al.  Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants , 2000 .

[7]  Peter J. Klenow,et al.  The Neoclassical Revival in Growth Economics: Has It Gone Too Far? , 1997, NBER Macroeconomics Annual.

[8]  Edward C. Prescott,et al.  Needed: a theory of total factor productivity , 1998 .

[9]  N. Mankiw.  The Growth of Nations , 1995 .

[10]  Andrea Roventini,et al.  Yeast vs. Mushrooms: A Note on Harberger's "A Vision of the Growth Process" , 2004 .

[11]  Stephen L. Parente,et al.  Barriers to riches , 2000 .

[12]  A. Banerjee,et al.  How Efficiently is Capital Allocated? Evidence from the Knitted Garment Industry in Tirupur , 2004 .

[13]  Raphael Bergoeing,et al.  Slow Recoveries , 2004 .

[14]  James A. Schmitz.  Government Production of Investment Goods and Aggregate Labor Productivity , 2001 .

[15]  L. Ohanian,et al.  Are data on industry evolution and gross job turnover relevant for macroeconomics , 1996 .

[16]  C. I. Jones,et al.  Why Do Some Countries Produce so Much More Output Per Worker than Others? , 1998 .

[17]  Martin Neil Baily,et al.  Productivity Dynamics in Manufacturing Plants , 1992 .

[18]  Scott D. Schuh,et al.  Job Creation and Destruction , 1997 .

[19]  D. Weil,et al.  A Contribution to the Empirics of Economic Growth Author ( s ) : , 2008 .

[20]  Peter J. Klenow,et al.  Relative Prices and Relative Prosperity , 2003 .

[21]  Stephen L. Parente,et al.  Monopoly rights: a barrier to riches , 1999 .

[22]  Esther Duflo,et al.  Growth Theory Through the Lens of Development Economics , 2004 .

[23]  Marcelo Veracierto.  Employment Flows, Capital Mobility, and Policy Analysis , 2000 .

[24]  Hugo Hopenhayn.  Entry, exit, and firm dynamics in long run equilibrium , 1992 .