Firm-size distribution and cross-country income differences
By: Laura Alfaro, Andrew Charlton, Fabio Kanczuk
Contributors: Charlton, Andrew (Andrew Henry George), 1978-; Kanczuk, Fabio, 1969-; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 07-086; Working paper (Harvard Business School. Division of Research) -- 07-086
Publisher: Division of Research, Harvard Business School
Published: 2007
Place of publication: Boston
Language: eng
Number of pages: 24
Description: We investigate, using a unique firm level dataset of nearly 20 million firms in 80 countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. Using a monopolistic competitive firm framework to derive our benchmark calibration, we find that the model over-explains income variance. We further explore whether the results are driven by sample biases, calibration assumptions, or modeling choice. We find the same results prevail even in sub-samples in which the data are more reliable, and when we vary the calibration assumptions. This suggests the need for more complex modeling structures. Despite these acknowledged shortcomings, our results suggest that misallocation of resources is a crucial determinant of income dispersion.
Notes: "April 2007"--Added t.p.

Includes bibliographical references.