Macroeconomic implications of size-dependent policies

Nezih Guner, Gustavo Ventura, Yi Xu

Research output: Contribution to journalArticlepeer-review

207 Scopus citations


Government policies that impose restrictions on the size of large establishments or firms, or promote small ones, are widespread across countries. In this paper, we develop a framework to systematically study policies of this class. We study a simple growth model with an endogenous size distribution of production units. We parameterize this model to account for the size distribution of establishments and for the large share of employment in large establishments. Then, we ask: quantitatively, how costly are policies that distort the size of production units? What is the impact of these policies on productivity measures, the equilibrium number of establishments and their size distribution? We find that these effects are potentially large: policies that reduce the average size of establishments by 20% lead to reductions in output and output per establishment up to 8.1% and 25.6% respectively, as well as large increases in the number of establishments (23.5%).

Original languageEnglish (US)
Pages (from-to)721-744
Number of pages24
JournalReview of Economic Dynamics
Issue number4
StatePublished - Oct 2008
Externally publishedYes


  • Establishment size
  • Productivity differences
  • Size distortions

ASJC Scopus subject areas

  • Economics and Econometrics


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