Todd Schoellman from the Federal Reserve Bank of Minneapolis will present "Economic Development According to Chandler"

Abstract: Chandler (1977) documents that large, modern businesses require hierarchies of white-collar workers for coordination and administration. We show that low education levels in developing countries limit the white-collar workforce, thereby constraining the potential for large firms. We expand the occupational choice model of Lucas (1978) by allowing entrepreneurs to reorganize their firms by allocating administrative tasks to hired professionals, which brings the firm closer to constant returns to scale. We calibrate the model to be consistent with cross-sectional microdata and validate it using quasi-experimental and experimental evidence on the effects of educational expansions and management training interventions. Expansions of education and reductions in barriers to large firms are complementary in generating the endogenous reorganization of production.