Cross-Country Differences in Productivity: The Role of Allocation and Selection
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In this paper, the effect of idiosyncratic (firm-level vel) policy distortions on aggregate outcomes is investigated, and it is shown that there is substantial and systematic cross-country variation in the within-industry covariance between size and productivity.Abstract:Â
This paper investigates the effect of idiosyncratic ( firm-le vel) 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) A vast theoretical and empirical literature has been devoted to identify the sources of the large and persistent differences in productivity across countries. At the same time, a parallel strand of research has emerged over the past decade suggesting large and persistent heterogeneity in firm-level productivity, even in narrowly defined industries, in a variety of countries (e.g., Bartelsman, Haltiwanger, and Scarpetta 2004).read more
Figures
Table 3. Key data moments and model moments when the model is calibrated to match the OP LPR covariance 
Figure 2: The Relationship Between Key Moments and Outcomes with Distortion Dispersion (Uncorrelated Case) 
Figure 1. The impact of overhead costs on key moments 
Figure 3: The Relationship Between Key Moments and Outcomes with Distortion Dispersion (Positive Correlation Case) 
Table 1: Within Industry Productivity Dispersion and OP Covariance Term 
Figure 4: The Relationship Between Key Moments and Outcomes with Distortion Dispersion (Positive Correlation Case) and Low Overhead Labor
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References
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The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity
TL;DR: This paper developed a dynamic industry model with heterogeneous firms to analyze the intra-industry effects of international trade and showed how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market).
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