This paper challenges the traditional growth theory that assumes an aggregate production function, where resources are optimally allocated. Using evidence from microdevelopment studies, it shows that resource allocation is often inefficient, with significant variation in returns to factors of production within economies. This heterogeneity in returns undermines the assumptions of traditional growth models. The paper reviews causes of misallocation, including market imperfections, and calibrates a model that incorporates fixed costs and misallocation. It argues that traditional models fail to explain why poor countries grow slower, as they assume optimal resource allocation. The paper suggests an alternative non-aggregate growth theory that accounts for misallocation and presents empirical evidence supporting this approach. It highlights that returns to capital and investment are not consistently higher in poor countries, and that misallocation of resources can significantly lower overall productivity. The paper concludes that non-aggregate models offer a better explanation for persistent poverty and low growth in developing countries.This paper challenges the traditional growth theory that assumes an aggregate production function, where resources are optimally allocated. Using evidence from microdevelopment studies, it shows that resource allocation is often inefficient, with significant variation in returns to factors of production within economies. This heterogeneity in returns undermines the assumptions of traditional growth models. The paper reviews causes of misallocation, including market imperfections, and calibrates a model that incorporates fixed costs and misallocation. It argues that traditional models fail to explain why poor countries grow slower, as they assume optimal resource allocation. The paper suggests an alternative non-aggregate growth theory that accounts for misallocation and presents empirical evidence supporting this approach. It highlights that returns to capital and investment are not consistently higher in poor countries, and that misallocation of resources can significantly lower overall productivity. The paper concludes that non-aggregate models offer a better explanation for persistent poverty and low growth in developing countries.