We investigate, using plant-level data for 79 developed and developing countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. For this purpose, we use a standard version of the neoclassical growth model augmented to incorporate monopolistic competition among heterogeneous plants. For our preferred calibration, the model explains 58% of the log variance of income per worker. This figure should be compared to the 42% success rate of the usual model.
*Published: This paper was subsequently published as Plant-Size Distribution and Cross-Country Income Differences, Laura Alfaro, Andrew Charlton, Fabio Kanczuk, in NBER book NBER International Seminar on Macroeconomics 2008 (2008)
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This paper was revised on August 21, 2008
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