Essays on international economics: size distribution of plants and international firms
- Autores: Roberto Ramos
- Directores de la Tesis: Claudio Michelacci (dir. tes.)
- Lectura: En la Universidad Internacional Menéndez Pelayo (UIMP) ( España ) en 2014
- Idioma: español
- Tribunal Calificador de la Tesis: Gino Gancia (presid.), Rosario Crinò (secret.), César Alonso Borrego (voc.), Hannes Mueller (voc.), Guy Michaels (voc.)
- Materias:
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- Resumen
Why do some countries have so low levels of income per capita? Why, for instance, income per capita in Nepal is only 2.5 percent that of the United States? A common view is that a high proportion of income variation across countries can be attributed to differences in total factor productivity (TFP).1 Moreover, a recent strand of literature has started to emphasize misallocation of resources across plants as a source of these differences in aggregate productivity.2 This misallocation arises from the existence of government policies that impose barriers to large forms and subsidize small ones, hence distorting the way resources are allocated across heterogeneous production units. In these works, the size distribution of establishments re ects how efficiently limited resources are allocated and, therefore, becomes a crucial object in order to understand cross-country income differences.
In this paper we use data on plants' size distribution and economic distortions to test the cross-country implications of the literature on misallocation mentioned above. We find that, consistent with the theory, economic distortions are crucial determinants in the allocation of labor across production units of different size. Speciffcally, we show that countries with a poorer business environment allocate more resources to small unproductive plants, generating an aggregate efficiency loss.
We illustrate this result in two steps. First, we show that there is a strong relationship between the size distribution and productivity. At the micro level, we show that largerplants are significantly more productive than small plants, even within the same industry and controlling for other determinants of productivity. At the macro level, we show that countries with a higher amount of labor allocated to small plants tend to have lower levels of income per worker and TFP. Second, we show that economic distortions are a significant determinant of the cross-country variation the size distribution of establishments. Importantly, this is so even after conditioning for the level of per capita income and country size. These variables control for potential determinants of the size distribution other than distortions, such as the efficiency of available technologies, the distribution of entrepreneurial talent, or the size of the market.
To perform our analysis, we use comparable plant-level data across 104 developing countries.
These are the Enterprise Surveys of theWorld Bank (ESWB), for the period 2006-2010.
This dataset is specially suitable for computing statistics on the size distribution across countries, mainly for three reasons. First, it is standardized. This means that every plant in every country answers the same questions. Second, coverage is very broad. We use data on 104 countries, which gives us power to validate the statistical significance of our findings. Moreover, surveyed countries are mostly of low and middle income per capita, hence, most likely to be afiected by distortions. And third, the sample of surveyed plants is representative of the population of formal private non-agricultural plants. This allows us to establish some facts about the allocation of resources beyond manufacturing. In order to check for the accurateness of our dataset, we perform an external validation of it, comparing the amount of labor implied by our survey data with that reported by a diffierent dataset, the the Penn World Table 7.0 (PWT).
In our cross-country comparison, we take the share of labor accounted by small plants as our measure of misallocation. We define small plants as those with less than 20 employees, following the classification of the World Bank. We find that there is substantial variation across countries in this statistic, as showed in Figure 1.1. We stress that economic distortions play an important role in explaining this observed differences across economies.
Our measure of economic distortions is the Ease of Doing Business Index of the World Bank. It provides objective measures of business regulations facing local firms, such as entry costs, dealing with government, financial frictions, taxes, clearing of goods and contract enforcement. We use the aggregate index as a summary of the general business environment of every country. We also decompose it in order to analyze how specific institutions affect the allocation of inputs across plants. We find that the capacity of the economy to provide credit is the main component driving our results.
Our paper contributes to the empirical literature that studies the size distribution ofplants in developing countries. Banarji (1978) shows for a small number of countries that the average size of plants is positively correlated with physical capital intensity. Liedholm and Donald (1987) provide evidence of poor countries having most of the employment allocated to small and large plants, establishing a phenomenon known as `the missing middle'. In a classic paper, Tybout (2000) collects this evidence and relates it to the poor performance of the manufacturing sector in developing countries. Leaning on country-level studies, he argues that a strong business regulation can be behind the excessive presence of small entrepreneurs.
By remaining small, entrepreneurs are able to avoid government regulation and hence do not achieve a larger size.3 In more recent works, Alfaro et al. (2008) use establishment level data for 79 countries to calibrate a Melitz (2003) type model in order to infer the level of distortions necessary to generate the observed deviation in the distribution of establishments with respect to the US; and Poschke (2012) documents that the average, standard deviation, and skewness of the size distribution of firms are positively correlated to income per capita, using firm-level data for around 50 countries.
Our paper provides additional evidence about cross-country differences in how resources are allocated across heterogeneous production units, and emphasize that a poor regulatory environment is behind the excessive amount of resources allocated to small plants in developing economies. This result is consistent with the cross-country implications of a recent in uential literature that uses theoretical frameworks to quantitatively measure the marginal effects of the presence of distortions.4 This literature shows that the existence of distortions prevents an optimal allocation of resources. In particular, distortions make too many resources being allocated to small unproductive firms, generating a high efficiency loss and hence creating big output losses. Guner et al. (2008) show that policies that reduce the average size of establishments by 20 per cent lead to reductions in output up to around 8 per cent. Hsieh and Klenow (2009) find that removing distortions in India and China such that marginal products are equalized to the extent observed in the US would imply TFP gains of up to 50 per cent in China and up to 60 per cent in India. García-Santana and Pijoan-Mas (2012) show that removing a particular size-dependent policy in India, the Reservation Laws, would imply a TFP gain of 2 per cent in the Indian manufacturing sector.
Our paper is also related to recent work which investigates the relationship between financial development and TFP across countries. Erosa and Hidalgo-Cabrillana (2008) show that financial frictions can generate misallocation of resources both across entrepreneurs of different talent and across industries with different needs for external financing. Buera et al. (2011) calibrate a two sectors version of Lucas (1978) to the US economy, showing that financial frictions can generate TFP losses of up to 40 percent. Using plant-level data, Midrigan and Xu (2010) show that most of these efficiency losses arise due to distortions associated to entry and technology adoption decisions. Arellano et al. (2012) investigate the impact of financial frictions on firms' financing and growth.
The rest of the paper is organized as follows. Section 1.2 explains in detail the characteristics of our dataset and compare it with other databases used to study the size distribution of plants across countries. Section 1.3 illustrates the relationship between size and productivity, both at the micro and at aggregate levels. Section 1.4 shows how economic distortions are significantly associated to the size distribution of establishment across countries. Section 1.5 analyses the effect of particular distortions on the size distribution. Finally, Section 1.6 gives concluding remarks.
