Working Paper: CEPR ID: DP6138
Authors: Nezih Guner; Gustavo Ventura; Yi Xu
Abstract: Government policies that impose restrictions on the size of large establishments or firms, or promote small ones, are widespread across countries. In this paper, we develop a framework to systematically study policies of this class. We study a simple growth model with an endogenous size distribution of production units. We parameterize this model to account for the size distribution of establishments and for the (observed) large share of employment in large establishments. Then, we ask: quantitatively, how costly are policies that distort the size of production units? What is the impact of these policies on productivity measures, the equilibrium number of establishments and their size distribution? We find that these effects are potentially large: policies that reduce the average size of establishments by 20% lead to reductions in output and output per establishment up to 8.1% and 25.6% respectively, as well as large increases in the number of establishments (23.5%).
Keywords: Establishment Size; Productivity; Differences; Size Distortions
JEL Codes: E23; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| size-dependent policies (J18) | output (C67) |
| size-dependent policies (J18) | productivity (O49) |
| size-dependent policies (J18) | number of establishments (L81) |
| size-dependent policies (J18) | size distribution of establishments (D39) |
| size-dependent policies (J18) | welfare gains (D69) |
| method of implementing size reductions (C69) | welfare costs (I30) |