Essays on technology, productivity and misallocation

There is a growing consensus that aggregate productivity is the most important factor in determining income per capita and living standards. The deep causes of productivity are technology and resource misallocation, which are the outcomes of firms\u27 decision making. Thus, a solid understanding of a firm-level mechanism is central to economic development. This dissertation consists of three chapters, each of which studies firms\u27 decision making under different economic environments. Chapter 1 studies firms\u27 technology and production choices in the context of information frictions and financial frictions. Empirical evidence suggests a positive role of financial development in firms\u27 technology adoption and the speed of technology diffusion. The chapter examines the role of information acquisition and financial development in explaining how technology differences may arise and persist during the technology adoption process. This, in turn, affects a country\u27s total factor productivity (TFP) level and the speed of TFP convergence. The quantitative study is applied to the Chilean manufacturing sector during the period of 1986-2007. Chapter 2 studies firms\u27 technology and production choices in the context of trade liberalization. Empirical evidence shows that, in a low-income country, trade liberalization triggers within-industry changes in firms\u27 skill intensity and productivity, as well as between-industry labor reallocation. The chapter examines the role of comparative advantage and trade cost reduction in determining aggregate productivity and the demand for skills through firm-level adjustment. The quantitative study is applied to the impact of Indonesia\u27s trade reform in 1995 on the Indonesian manufacturing sector. Chapter 3 studies firms\u27 rent-seeking behavior and production choices when tax benefits are tied to capital holding. Evidence shows that the dominant issue of corporate lobbying in the U.S. is taxation. Firms that lobby are granted tax benefits and enjoy systematically lower effective tax rates than non politically active firms. Thus, corporate lobbying distorts the allocation of capital in the economy. The chapter explores the macroeconomic effects of capital-based tax benefits and their interaction with endogenous corporate lobbying behavior. The quantitative study is applied to the U.S. firm-level data during the period of 1998-2011