Policy distortions and aggregate productivity with heterogeneous establishments

Diego Restuccia, Richard Rogerson

Research output: Contribution to journalArticlepeer-review

644 Scopus citations

Abstract

We formulate a version of the growth model in which production is carried out by heterogeneous establishments and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across establishments that differ in productivity 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 total factor productivity (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.

Original languageEnglish (US)
Pages (from-to)707-720
Number of pages14
JournalReview of Economic Dynamics
Volume11
Issue number4
DOIs
StatePublished - Oct 2008
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Plant heterogeneity
  • Policy distortions
  • Productivity

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