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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Cross-Country Differences in Productivity:The Role of Allocation and Selection * This paper combines different strands of the productivity literature to investigate the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. On the one hand, a growing body of empirical research has been relating cross-country differences in key economic outcomes, such as productivity or output per capita, to differences in policies and institutions that shape the business environment. On the other hand, a branch of empirical research has attempted to shed light on the determinants of productivity at the firm-level and the evolution of the distribution of productivity across firms within each industry. In this paper, we exploit a rich source of data with harmonized statistics on firm level variation within industries for a number of countries. Our key empirical finding is that there is substantial variation in the within-industry covariance between size and productivity across countries, and this variation is affected by the presence of idiosyncratic distortions. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. We show that the model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance. NON-TECHNICAL SUMMARYThis paper sheds light on the role of policy-induced distortions in the allocation of resources for productivity growth. It exploits a rich source of data with harmonized statistics on firm level variation in productivity and size within each industry for a number of countries. It shows that the observed cross-country variation in the correlation between firms' size and their productivity, within-industry, can be explained by the presence of idiosyncratic distortions. The paper presents a theoretical model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. The model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance.JEL Classification: E02, L11, L16, L2, L25, O4, O57

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“…This is how the mechanism of allocative efficiency works in developed market economies. A similar trend was found in the developing economies of Eastern Europe where there was very low or even negative allocative efficiency at the beginning of the transition period and only later did it improve significantly [Bartelsman et al, 2013]. In contrast, there are still no clear indications of improving allocative efficiency in Russia.…”

“…This is the main motivation for growth among the entrants. Empirical evidence from developed countries suggest that firms follow an "up-or-out" dynamic where small firms are more likely to go bankrupt than larger firms, but in the case of success, the chances for growth rise [Bartelsman et al, 2013;Navaretti et al, 2014;Geurts, van Biesebroeck, 2016, etc.]. In general, the average size of a firm will double after 5-10 years on the market, but only fifty percent of entrants will survive [Geurts, van Biesebroeck, 2016].…”

Public debt and total factor productivity

“…If firms are weighted by size (note that employment and output are proportional to the idiosyncratic draw of z i ), the weighted standard deviation of ln(TFP) turns out to be α/(ϕ − 1) ≈ 0.19. Both measures are smaller than the empirical measures of standard deviations of ln(TFP) for US firms within narrowly defined industries which average around 0.4 (see Hsieh and Klenow (2009) and Bartelsman et al (2013)). While model calibrations with more dispersion (i.e.…”

Capital Misallocation During the Great Recession

“…OP argued that this was because the deregulation permitted inputs to be reallocated more readily from less to more productive US …rms. In a subsequent study, Bartelsman et al (2013) found that the OP covariance term for labor productivity averages about 50 log points within US manufacturing industries: this implies that the industry index of labor productivity in the average US manufacturing industry is 50 percent higher than it would be if employment shares were randomly allocated within industries. Bartelsman and his coauthors found however that the OP covariance term reaches only 20-30 log points in Western Europe and it was close to zero, if not negative, in Central and Eastern European countries at the beginning of their transition to a market economy.…”

“…As I discussed in section 3, I decompose the total factor productivity index for …rms in Compustat as the sum of an unweighted component and a covariance component, following the methodology pioneered by Olley and Pakes (1996) and reprised by Bartelsman et al (2013):…”