Abstract

http://ssrn.com/abstract=1522368
 
 

Citations (8)



 


 



Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence


Susanto Basu


Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Luigi Pascali


Boston College

Fabio Schiantarelli


Boston College - Department of Economics; Institute for the Study of Labor (IZA)

Luis Servén


World Bank - Office of the Chief Economist; World Bank - Development Research Group (DECRG)

December 2009

NBER Working Paper No. w15579

Abstract:     
We prove that in a closed economy without distortionary taxation, the welfare of a representative consumer is summarized to a first order by the current and expected future values of the Solow productivity residual in level and by the initial endowment of capital. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies TFP as the right summary measure of welfare (even in situations where it does not properly measure technology) and makes it possible to calculate the contributions of disaggregated units (industries or firms) to aggregate welfare using readily available TFP data. We show how these results must be modified if the economy is open or if taxes are distortionary. We then compute firm and industry contributions to welfare for a set of European OECD countries (Belgium, France, Great Britain, Italy, Spain), using industry-level (EU-KLEMS) and firm-level (Amadeus) data. After adding further assumptions about technology and market structure (firms minimize costs and face common factor prices), we show that welfare change can be decomposed into three components that re.ect respectively technical change, aggregate distortions and allocative efficiency. Then, using the appropriate firm-level data, we assess the importance of each of these components as sources of welfare improvement in the same set of European countries.

Number of Pages in PDF File: 49

working papers series


Download This Paper

Date posted: December 15, 2009  

Suggested Citation

Basu, Susanto and Pascali, Luigi and Schiantarelli, Fabio and Servén, Luis, Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence (December 2009). NBER Working Paper No. w15579. Available at SSRN: http://ssrn.com/abstract=1522368

Contact Information

Susanto Basu (Contact Author)
Boston College, College of Arts and Sciences, Department of Economics ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3806
United States
617-552-2308 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Luigi Pascali
Boston College ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
Fabio Schiantarelli
Boston College - Department of Economics ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-4512 (Phone)
617-552-2308 (Fax)
HOME PAGE: http://https://share.bc.edu/13364/24073
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Luis Servén
World Bank - Office of the Chief Economist ( email )
Washington, DC 20433
United States
202-473-7451 (Phone)
202-522-3518 (Fax)
HOME PAGE: http://www.worldbank.org/research/bios/lserven.htm
World Bank - Development Research Group (DECRG)
1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
Feedback to SSRN


Paper statistics
Abstract Views: 248
Downloads: 15
Citations:  8

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.344 seconds