The recent work on misallocation argues that aggregate productivity in poor countries is low because various market frictions prevent marginal products from being equalized. By focusing on such allocative inefficiencies, misallocation is construed as a purely static phenomenon. This paper argues...

How important is financial development for economic development? A costly state veriÂ…cation model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as the intermediation spreads and the firm-size...

We construct and estimate a unified model combining three of the main sources of cross-country income disparities: differences in factor endowments, barriers to technology adoption and the inappropriateness of frontier technologies to local conditions. The key components are different types of...

We construct and estimate a unifi…ed model combining three of the main sources of cross-country income disparities: differences in factor endowments, barriers to technology adoption and the inappropriateness of frontier technologies to local conditions. The key components are different types of...

In this paper we quantify the effects of the Small Scale Reservation Laws in India on the aggregate productivity, aggregate output and welfare of the Indian economy. To this end, we extend the span-of-control model by Lucas (1978) into a multi-sector setting and embed it into the neo-classical...

How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for...

We construct and estimate a unified model combining three of the main sources of cross-country income disparities: differences in factor endowments, barriers to technology adoption and the inappropriateness of frontier technologies to local conditions. The key components are different types of...

The Small Scale Reservation Laws (SSRL) in India are a unique case of firm-level size restrictions. We quantify their aggregate productivity costs by use of a span-of-control model extended into a multisector setting. The reallocation of top managers away from the distorted sector partly offsets...

How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as the intermediation spreads and the firm-size distributions...