NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence

Susanto Basu, Luigi Pascali, Fabio Schiantarelli, Luis Serven

NBER Working Paper No. 15579
Issued in December 2009
NBER Program(s):   EFG   PR

We prove that in a closed economy without distortionary taxation, the welfare of a representative consumer is summarized to a first order by the current and expected future values of the Solow productivity residual in level and by the initial endowment of capital. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies TFP as the right summary measure of welfare (even in situations where it does not properly measure technology) and makes it possible to calculate the contributions of disaggregated units (industries or firms) to aggregate welfare using readily available TFP data. We show how these results must be modified if the economy is open or if taxes are distortionary. We then compute firm and industry contributions to welfare for a set of European OECD countries (Belgium, France, Great Britain, Italy, Spain), using industry-level (EU-KLEMS) and firm-level (Amadeus) data. After adding further assumptions about technology and market structure (firms minimize costs and face common factor prices), we show that welfare change can be decomposed into three components that re.ect respectively technical change, aggregate distortions and allocative efficiency. Then, using the appropriate firm-level data, we assess the importance of each of these components as sources of welfare improvement in the same set of European countries.

download in pdf format
   (382 K)

email paper

This paper is available as PDF (382 K) or via email.

This paper was revised on December 5, 2011

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15579

Users who downloaded this paper also downloaded these:
Basu, Pascali, Schiantarelli, and Serven w17971 Productivity and the Welfare of Nations
Syverson w15712 What Determines Productivity?
Bartlesman, Haltiwanger, and Scarpetta w15490 Cross-Country Differences in Productivity: The Role of Allocation and Selection
Cette, Kocoglu, and Mairesse w15577 Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century
Justiniano, Primiceri, and Tambalotti w15570 Investment Shocks and Business Cycles
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us