Cross-Country Differences in Productivity: The Role of Allocation and Selection
Eric Bartelsman, John Haltiwanger, Stefano Scarpetta
American Economic Review · 2013 · Volume 103 · Issue 1
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)
Keywords
Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Firm Performance: Size, Diversification, and Scope, Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
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