NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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On Average Establishment Size across Sectors and Countries

Pedro Bento, Diego Restuccia

NBER Working Paper No. 24968
Issued in August 2018
NBER Program(s):Development Economics, Economic Fluctuations and Growth, Productivity, Innovation, and Entrepreneurship

We construct a new dataset for the average employment size of establishments across sectors and countries from hundreds of sources. Establishments are larger in manufacturing than in services, and in each sector they are larger in richer countries. The cross-country income elasticity of establishment size is remarkably similar across sectors, about 0.3. We discuss these facts in light of several prominent theories of development such as entry costs and misallocation. We then quantify the sectoral and aggregate impact of entry costs and misallocation in an otherwise standard two-sector model of structural transformation with endogenous firm entry and firm-level productivity. We find that observed measures of misallocation account for the entire range of establishment-size differences across sectors and countries and almost 50 percent of the difference in non-agricultural GDP per capita between rich and poor countries.

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Document Object Identifier (DOI): 10.3386/w24968

 
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