Abstract: We formulate
a version of the growth model in which production is carried out by
heterogeneous plants and calibrate it to US data. In the context of
this model we argue that differences in the allocation of resources
across heterogeneous plants may be an important factor in accounting
for cross-country differences in output per capita. In particular,
we show that policies which create heterogeneity in the prices faced
by individual producers can lead to sizeable decreases in output and
measured TFP in the range of 30 to 50 percent. We show that these
effects can result from policies that do not rely on aggregate
capital accumulation or aggregate relative price differences. More
generally, the model can be used to generate differences in capital
accumulation, relative prices, and measured TFP.
Keywords: Plant heterogeneity, productivity, policy
JEL Classification: O1