Comment

An essential issue in economics is understanding why some countries are rich and others poor. A consensus view has emerged in the literature whereby productivity is at the core of the differences in income across nations. Over the last fifteen years, progress has been made in our understanding of cross-country income differences in part by the increasing recognition of the importance of production heterogeneity—firms—and the allocation of factors of production across them for aggregate outcomes. The progress has been enhanced by the much wider availability of microeconomic data sets of firms across a growing number of countries. There has been a productive interplay of macroand microeconomic approaches to development. Two papers in this issue of Economía reflect very well the synergy that is growing across subfields, and both papers provide valuable insights for the overall role of firms and productivity on development. Although both papers offer insights and implications that are broad across many fields in economics, I focus my discussion in the context of the macroeconomic development literature and, in particular, the connection of misallocation and aggregate productivity. In “Firm Dynamics and Productivity: TFPQ, TFPR, and Demand-Side Factors,” John Haltiwanger discusses relevant measurement issues surrounding estimates of firm-level productivity and the implied inference of distortions, misallocation, and aggregate productivity derived from a variety of microeconomic data sets of firms. What is typically meant by misallocation? The concept of misallocation is tightly related to a particular economic structure. To focus the discussion, consider a simple one-period economy where a single homogeneous good is produced by heterogeneous establishments that differ only in their productivity. That is, more productive establishments produce more output for a given set of inputs. Assume for illustration that there are decreasing returns to scale in inputs at the establishment level, although this assumption is not essential. Incidentally, the aggregate production function implied by this setting features D I E G O R E S T U C C I A University of Toronto