Journal article

Cross-country differences in productivity: The role of allocation and selection

Bartelsman E, Haltiwanger J, Scarpetta S ...see all

American Economic Review, vol. 103, issue 1 (2013) pp. 305-334

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Abstract

This paper investigates the effect of idiosyncratic ( firm-level) policy distortions on aggregate outcomes. Exploiting harmonized firm‑level data for a number of countries, we show that there is substantial and systematic cross‑country variation in the within-industry covariance between size and productivity. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and distortions. The model can be readily calibrated so that variations in the distribution of distortions allow matching the observed cross-country moments. We show that the differences in the distortions that account for the size-productivity covariance imply substantial differences in aggregate performance. (JEL D24, L25, O47)

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Authors

  • Eric Bartelsman

  • John Haltiwanger

  • Stefano Scarpetta

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