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One of the most important developments in the growth literature of the last decade is the enhanced appreciation of the role that the misallocation of resources plays in helping us understand income differences across countries. Misallocation at the micro level typically reduces total factor productivity at the macro level. Quantifying these effects is leading growth researchers in new directions, two examples being the extensive use of firm-level data and the exploration of input-output tables, and promises to yield new insights on why some countries are so much richer than others.

I analyze a model of production in a competitive environment with heterogeneous …rms. E ¢ cient production requires individuals within the organization to take noncontractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises emerges from a …rm’s future competitive rents. Equilibrium competitive rents are ine ¢ ciently concentrated at the top. I explore several policy and empirical implications of this result. (JEL D21, D24, L14, L22)

This is a theory of total factor productivity based on measured capital market imperfections and costs of creating and operating formal sector firms. We develop a firm dynamics model with endogenous formal and informal sectors where firms face a technology adoption opportunity. The model predicts that countries with a low degree of debt enforcement and high costs of formality are characterized by low allocative efficiency and a large share output produced by low productivity firms in the informal sector. We find that this mechanism is quantitatively important. When frictions are parameterized using the World Bank Doing Business database, the model explains between 40 % and 70 % of total factor productivity differences between the US and developing economies.

If trade barriers are managed by ine cient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the elimination of externally imposed export quotas. We nd that the surge in export value and decline in export prices following quota removal is driven by net entry, and show that this dominance is inconsistent with use of a productivity-based allocation of quota licenses by the Chinese government. Our counterfactual implies that elimination of misallocated quotas raised the overall productivity gain of quota removal by 28 percent.

We study capital misallocation within and across 10 African countries using the World Bank Enterprise Surveys. First, we compare the extent of misallocation among firms within coun-tries. We document high variation in firms ’ marginal product of capital (MPK), implying that countries could produce significantly more with the same aggregate capital stock if capital were allocated optimally. Such variation differs from country to country with some African countries (success stories) closer to developed country benchmarks. Small firms and non-exporters have less access to finance and have higher returns to capital in general. Self reported measures of obstacles to firms ’ operations suggest access to finance is the most important obstacle: A firm with the worst access to finance has MPK 45 percent higher than a firm with the worst access to finance as a result of low capital per worker. We compare average levels of the MPK across countries, finding evidence that the strength of property rights and the quality of the legal system help explain country-level differences in capital misallocation.

I was asked to consider the impact of Industrial Organization on recent re-search in macroeconomics. This is a di ¢ cult question for at least two reasons. In the …rst place, macroeconomics is probably one of the broadest areas in economics so its boundaries are hard to de…ne. Research ranges from ab-

Abstract The paper considers formally the mapping from distortions in the allocations of resources across firms to aggregate productivity. TFP gaps are characterized as the integral of a strictly concave function with respect to an employment-weighted measure of distortions. Size related distortions are shown to correspond to a mean preserving spread of this measure, explaining the stronger effects on TFP found in the literature. In general, the effect of correlation between distortions and productivity is shown to be ambiguous; conditions are given to determine its sign. An empirical lower bound on distortions based on size distribution of firms is derived and analyzed, revealing that substantial rank reversals in firm size are necessary for distortions to explain large TFP gaps. The effect of curvature on the impact and measurement of distortions is also considered. JEL Classification: O11, O16, O47.

The productivity differences have been proposed as a main factor of large differences in GDP per capita. Generally speaking, bad aggregate economic performance has been attributed broadly to "government regulations". In particular, Restuccia and Rogerson (2008), Hsieh and Klenow (2009) and Alfaro et al. (2008) suggested that resource misallocation affected by shocks is highly related with the aggregate total factor productivity. Thus in this paper, we have studied on misallocation in Norway and Chile. Norway has strong economic condition which is stable. In the contrast, Chilean economy was heavily regulated, suffered a financial crisis in the beginning of 1980s and implemented in labor and capital market reforms that led to a strong recovery from mid 1980s. The aim of this paper is to perform analysis on to what extent resources are distorted and how policies relate to aggregate efficiency in Chile and Norway. Using Hsieh and Klenow (2009)'s framework, we build the model that monopolistic competitive firms face distortions on output and capital. Distortions differentiate marginal revenue product across firms and therefore decrease aggregate TFP. The data used are collected from Instituto National de Estadistica (INE) and World Bank's

Abstract: We develop a general equilibrium model to assess the quantitative impact of distorting institutions and policies related to the poor business environment in 30 sub-Saharan African countries. A subset of the distortions—namely, regulation, crime, corruption, and poor infrastructure—is modeled as a tax on output. From the data, we find that, on average, firms in Africa lose a fifth of their sales as a result of those distortions. On the other hand, low access to credit affects the reallocation of resources across firms and capital formation. We find that the quantitative effects of these areas on the business environment are large. They lead to decreases in the range of 40 to 77 percent for output and from 18 to 44 percent for total factor productivity. Overall, the distortions explain about 67 percent of the variation in income per worker relative to the United States. JEL classification: O16, O47, L23