One of the major reasons for low productivity in developing countries is the misallocation of inputs. Productivity can increase with proper rearranging, which is supported by different policies.<sup>8</sup> In this process, it is important to know the nature of productivity differences to implement right type of policies. The goal of future research could be to identify possible sources of misallocation of resources and output in emerging economies and the role of policies to improve them. If we can identify the possible sources of misallocation, we may also answer the question of why productivity gaps exist among businesses in a country or across countries.

There are many factors that could be possible sources of the misallocation problem in developing countries. It may not be easy to identify them one by one. Thus, the approach that we could choose is to identify major obstacles in the reallocation process. We believe that identifying the reasons behind large productivity gains provide us with hints about what the initial sources of low productivity could be in the beginning. For example, if a large improvement in productivity is observed in a country after some financial reforms which may increase availability of funds, we can conclude that financial market imperfections could be an important source of low productivity and misallocation of resources in that country. Given differences among countries in market structure, institutions, technology, human capital, regulations, it is expected to observe some differences in productivity. Thus, it is important to study the periods of large productivity gains and reasons behind them across countries.

To accomplish this goal, future work should aim to systematically study the periods of large productivity gains and/or losses in different developing countries. Micro‐level databases that allow us to properly measure productivity need to be used and the focus could be on narrowly defined industries at first. But then we could aggregate data at industry and national levels to observe productivity at different levels. After identifying the periods of large changes at the micro, industry, and national levels of productivity, future work could try to link such changes to major events occurred around this period with changes in policies or regulations in the country. We are planning to include Brazil, Chile, Colombia, and India in the study.<sup>9</sup> Based on previous studies in the literature, all these countries have reliable micro‐level data to measure productivity.

> 8 Three of the recent studies are by Hsieh and Klenow (2009), Brandt, Loren, Van Biesebroeck, and Zhang (2009), and Hallward‐Driemeier and Thompson (2009a and 2009b). Hsieh and Klenow (2009) emphasize the importance of resource misallocation which may significantly lower aggregate productivity. In a study, where Chinese firms are investigated, Brandt, Loren, Van Biesebroeck, and Zhang (2009) show that net entry contributes roughly half to total TFP growth. Hallward‐Driemeier and Thompson (2009) show that the turnover rate of Moroccan firms is important source of productivity and overall growth.

> 9 Details are provided in the following sections.

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