Policy Distortions and Aggregate Productivity with Heterogeneous Plants / Diego Restuccia, Richard Rogerson.

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Restuccia, Diego

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w13018.Publication details: Cambridge, Mass. National Bureau of Economic Research 2007.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We formulate a version of the growth model in which production is carried out by heterogeneous plants and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across heterogeneous plants 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 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.

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Previous	nber w13015 International Differences in Lean Production, Productivity and Employee Attitudes /	nber w13016 The Productivity Argument for Investing in Young Children /	nber w13017 Micro and Macro Elasticities in a Life Cycle Model With Taxes /	nber w13018 Policy Distortions and Aggregate Productivity with Heterogeneous Plants /	nber w13019 Crises and Growth: A Latin American Perspective /	nber w1302 Taxation and Savings - A Neoclassical Perspective /	nber w13020 Collateral Damage: Exchange Controls and International Trade /	Next

April 2007.

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