Models of firm heterogeneity and growth
AbstractAlthough employment at individual firms tends to be highly non-stationary, 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 paper 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 InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 678.
Date of creation: 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
- NEP-CSE-2010-05-02 (Economics of Strategic Management)
- NEP-DGE-2010-05-02 (Dynamic General Equilibrium)
- NEP-ENT-2010-05-02 (Entrepreneurship)
- NEP-TID-2010-05-02 (Technology & Industrial Dynamics)
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