The Micro and Macro Productivity of Nations

We examine aggregate productivity di↵erences across nations using cross-country firmlevel data and a quantitative model of production heterogeneity with distortions featuring operation decisions (selection) and productivity-enhancing investments (technology). Empirically, less developed countries feature higher distortions and larger dispersion in firm-level productivity, mostly resulting from the higher prevalence of unproductive firms. Quantitatively, measured cross-country di↵erences in the elasticity of distortions with respect to firm productivity generate the bulk of empirical patterns and over two-thirds of cross-country labor productivity di↵erences. Both selection and technology channels are important. Variation in static misallocation also plays an important role, albeit smaller.