Explaining Cross-Country Productivity Differences in Retail Trade

49 Pages Posted: 10 Feb 2013

See all articles by David Lagakos

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 2013

Abstract

Many macro-economists argue that productivity is low in developing countries because of frictions that impede the adoption of modern technologies. I argue that in the retail trade sector, which employs just under twenty percent of the workforce on average, developing countries rationally choose technologies with low measured labor productivity. My theory is that the adoption of modern retail technologies is optimal only when household ownership of complementary durable goods, such as cars, is widespread. Because income is low in the developing world, households own few such durables; hence, retail trade is dominated by traditional technologies with low measured productivity. I show that an implication of this theory is that policies that lead to large increases in measured retail productivity do not necessarily lead to large increases in welfare.

Keywords: macroeconomics, productivity, technology adoption, retail trade, informality, home production

JEL Classification: O11, O40, E26, L81

Suggested Citation

Lagakos, David, Explaining Cross-Country Productivity Differences in Retail Trade (January 2013). Available at SSRN: https://ssrn.com/abstract=2214497 or http://dx.doi.org/10.2139/ssrn.2214497

David Lagakos (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER) ( email )

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