The Dynamics of Development: Innovation and Reallocation

53 Pages Posted: 28 Aug 2018

See all articles by Francisco J. Buera

Francisco J. Buera

Washington University in St. Louis; National Bureau of Economic Research (NBER)

Roberto N. Fattal Jaef

World Bank

Date Written: June 29, 2018

Abstract

This paper proposes a quantitative model of firm dynamics with endogenous innovation to study growth acceleration episodes triggered by reforms. The authors find that reforms removing barriers to firm entry lead to persistent growth in TFP and declining average firm size, as in the experience of successful post-communist transitions. Reforms that reverse resource misallocation result in more protracted paths of TFP and rising average firm size, as in the experience of non-communist growth accelerations. When calibrating the reforms to data from Chile's and China?s growth accelerations, the model can replicate the macro and firm-level features of these episodes.

Suggested Citation

Buera, Francisco J. and Fattal Jaef, Roberto N., The Dynamics of Development: Innovation and Reallocation (June 29, 2018). World Bank Policy Research Working Paper No. 8505, Available at SSRN: https://ssrn.com/abstract=3238345

Francisco J. Buera (Contact Author)

Washington University in St. Louis ( email )

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National Bureau of Economic Research (NBER)

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Roberto N. Fattal Jaef

World Bank

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