Macroeconomic implications of size-dependent policies

Abstract

Government policies that impose restrictions on the size of large establishments or firms, or promote small ones, are widespread across countries. In this paper, we develop a framework to systematically study policies of this class. We study a simple growth model with an endogenous size distribution of production units. We parameterize this model to account for the size distribution of establishments and for the large share of employment in large establishments. Then, we ask: quantitatively, how costly are policies that distort the size of production units? What is the impact of these policies on productivity measures, the equilibrium number of establishments and their size distribution? We find that these effects are potentially large: policies that reduce the average size of establishments by 20% lead to reductions in output and output per establishment up to 8.1% and 25.6% respectively, as well as large increases in the number of establishments (23.5%).

Impact of the business environment on output and productivity in Africa

“…Greenwood et al (2010) and Buera and Shin (2010) studies the misallocation caused by low financial development. Closely related to Restuccia and Rogerson (2008), Guner et al (2008) also studies the misallocation due to size restrictions.…”

Skill Investment, Farm Size Distribution and Agricultural Productivity

“…This value is consistent with several existing estimates. Guner et al [2008] estimates the span-ofcontrol parameter to be 0.8 for the aggregate economy. A similar value is used inRestuccia and Rogerson [2008] for studying the effect of distortions on aggregate productivity in an economy with heterogeneous plants.…”

Capital Misallocation During the Great Recession

“…A seminal contribution in this …eld is Hopenhayn and Rogerson (1993): using the Hopenhayn (1992) model of …rm dynamics they quantify the aggregate TFP loss due to …ring costs. A non-exhaustive list of more recent works comprises , , Guner et al (2008), Hsieh andKlenow (2009), Restuccia andRogerson (2008) and Midrigan and Xu (2014). Much of this literature however emphasizes the role of frictions and policies in the cross-country di¤erence in long-run TFP and, therefore, abstracts from the cyclical dynamics of misallocation.…”