We study the relationship between economic distortions and the size distribution of plants using comparable plant-level data across 104 developing countries. Our main result is to show that, other things equal, countries with larger economic distortions display a higher allocation of resources to small unproductive units. When we decompose the business environment into different type of distortions, we find that poor access to financial credit is the one driving our results. We also show that there exists a significant relationship between the size distribution and aggregate productivity at the cross-country level. These results are consistent with a large recent literature on misallocation of resources and can account for some of the large observed cross-country differences in TFP.