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Models of Growth and Firm Heterogeneity

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  • Erzo G.J. Luttmer

    ()
    (Department of Economics, University of Minnesota, Minneapolis, Minnesota 55455, and Federal Reserve Bank of Minneapolis)

Abstract

Although employment at individual firms tends to be highly nonstationary, the employment size distribution of all firms in the United States appears to be stationary. It closely resembles a Pareto distribution. There is a lot of entry and exit, mostly of small firms. This review surveys general equilibrium models that can be used to interpret these facts and explores the role of innovation by new and incumbent firms in determining aggregate growth. The existence of a balanced growth path with a stationary employment size distribution depends crucially on assumptions made about the cost of entry. Some type of labor must be an essential input in setting up new firms.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (09)
Pages: 547-576

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Handle: RePEc:anr:reveco:v:2:y:2010:p:547-576

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Related research

Keywords: firm size distribution; organization capital; heterogeneous productivity; selection;

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Citations

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Cited by:
  1. Loris Rubini & Klaus Desmet & Facundo Piguillem & Aranzazu Crespo, . "Breaking down the barriers to firmgrowth in Europe The fourth EFIGE policy report," Blueprints, Bruegel, number 744, June.
  2. Nicholas Trachter & Andrea Pozzi & Luigi Paciello, 2014. "Markups Dynamics with Customer Markets," 2014 Meeting Papers 39, Society for Economic Dynamics.
  3. Erzo G.J. Luttmer, 2009. "Technology diffusion and growth," Working Papers 672, Federal Reserve Bank of Minneapolis.
  4. Michael Peters, 2013. "Heterogeneous mark-ups, growth and endogenous misallocation," LSE Research Online Documents on Economics 54254, London School of Economics and Political Science, LSE Library.
  5. Marc J. Melitz & Stephen J. Redding, 2012. "Heterogeneous Firms and Trade," NBER Working Papers 18652, National Bureau of Economic Research, Inc.

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