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American Economic Review: Vol. 103 No. 1 (February 2013)

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Cross-Country Differences in Productivity: The Role of Allocation and Selection

Article Citation

Bartelsman, Eric, John Haltiwanger, and Stefano Scarpetta. 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection." American Economic Review, 103(1): 305-34.

DOI: 10.1257/aer.103.1.305

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

Bartelsman, Eric (Free U Amsterdam and Tinbergen Institute)
Haltiwanger, John (U MD and IZA, Bonn)
Scarpetta, Stefano (OECD and IZA, Bonn)

JEL Classifications

D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
L25: Firm Performance: Size, Diversification, and Scope
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence


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