Chapter | NBER International Seminar on Macroeconomics 2008 | 2009

Plant-Size Distribution and Cross-Country Income Differences

by Laura Alfaro, Andrew Charlton and Fabio Kanczuk

Abstract

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.

Keywords: Factories, Labs, and Plants; Developing Countries and Economies; Wages; Resource Allocation; Mathematical Methods;

Citation:

Alfaro, Laura, Andrew Charlton, and Fabio Kanczuk. "Plant-Size Distribution and Cross-Country Income Differences." In NBER International Seminar on Macroeconomics 2008, edited by Jeffrey A. Frankel and Christopher Pissarides. Cambridge, MA: National Bureau of Economic Research, 2009.