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Cross-industry tfp growth differences with asymmetric industries and the endogenous market structure

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  • Lei Ji

    (Ofce sciences-po, Skema Business School)

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    Abstract

    I develop a multi-industry endogenous growth model with the endogenous market structure. Industries are heterogeneous in production unit costs, research and development RD productivities, fixed operating costs and industry level market sizes. The endogenous market structure allows an empirically realistic and theoretically important determination of the individual firms’ market sizes and distinguishes the model from the previous literatures. There are two sets of results. First, the balanced growth rate depends positively on RD productivities and firm market size of both industries but not industry market size. Surprisingly, the steady state total factor productivity TFP level ratio between industry 1 and 2 depends negatively on RD productivity and fixed costs in industry 1 and positively on those parameters in industry 2. Second, industry differences in both TFP growth and R&D intensity mainly reflect differences in quality-adjusted gross profits and RD productivities. Such differences depend on RD productivities and fixed operating cost parameters in general equilibrium. The industry with a higher RD productivity and fixed cost has a lower TFP growth and research intensity compared to the other industry. Differences in production unit costs and industry level market sizes do not to contribute to cross-industry TFP growth differences. These results are substantially different from what is found in the existing literature. Model also offers novel explanations for directed technical change and structural change, and it offers a structure for analyzing the interaction between trade and growth.

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    Bibliographic Info

    Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2013-17.

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    Date of creation: Sep 2013
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    Handle: RePEc:fce:doctra:1317

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    Keywords: Cross-industry TFP growth differences; endogenous growth; asymmetric industries; endogenous market structure;

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    1. Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
    2. Acemoglu, Daron, 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," CEPR Discussion Papers 1707, C.E.P.R. Discussion Papers.
    3. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    4. Jeffrey Bernstein & Ishaq Nadiri, 1988. "Interindustry R&D Spillovers, Rates of Return, and Production in High-Tech Industries," Carleton Industrial Organization Research Unit (CIORU) 88-01, Carleton University, Department of Economics.
    5. David K. Backus & Patrick J. Kehoe & Timothy J. Kehoe, 1992. "In search of scale effects in trade and growth," Staff Report 152, Federal Reserve Bank of Minneapolis.
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    7. Peretto, Pietro F., 1996. "Technological Change and Population Growth," Working Papers 96-28, Duke University, Department of Economics.
    8. Jakob B. Madsen & EPRU & FRU, 2007. "Semi-Endogenous Versus Schumpeterian Growth Models: Testing The Knowledge Production Function Using International Data," Development Research Unit Working Paper Series 26-07, Monash University, Department of Economics.
    9. Drazen, Allan & Helpman, Elhanan, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 147-64, January.
    10. Giordani, Paolo E. & Zamparelli, Luca, 2007. "The Importance of Industrial Policy in Quality-Ladder Growth Models," MPRA Paper 6142, University Library of Munich, Germany.
    11. Peretto, Pietro F, 1996. "Sunk Costs, Market Structure, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 895-923, November.
    12. Pietro F. Peretto, 2005. "Corporata Taxes, Growth and Welfare in a Schumpeterian Economy," 2005 Meeting Papers 653, Society for Economic Dynamics.
    13. Rachel Ngai & Roberto Samaniego, 2011. "Accounting for Research and Productivity Growth Across Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 475-495, July.
    14. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
    15. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, vol. 12(4), pages 329-350, December.
    16. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
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