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How and why do firms differ?

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Author Info
Jakob Klette, Tor () (Dept. of Economics, University of Oslo)
Raknerud, Arvid () (Statistics Norway)

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Abstract

How do firms differ, and why do they di.er even within narrowly defined industries? Using evidence from six high-tech, manufacturing industries covering a 24-year period, we show that di.erences in sales, materials, labor costs and capital across firms can largely be summarized by a single, firm-specific, dynamic factor, which we label effciency in the light of our structural model. The model contains the complete system of supply and factor demand equations. It suggests that e.ciency is strongly linked to profitability and firm size, but it is unrelated to labor productivity. Our second task is to understand the origin and evolution of the differences in effciency. Among the firms established within the 24 year period that we consider, permanent differences in efficiency dominate over di.erences generated by firm-specific, cumulated innovations.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo3002.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 30/2002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 42 pages
Date of creation: 18 Jun 2003
Date of revision:
Handle: RePEc:hhs:osloec:2002_030

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: effciency; firm heterogeneity; labor productivity; intrinsic differences; firmspecific innovations; state space models; maximum likelihood;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

References listed on IDEAS
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  1. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  2. Boyan Jovanovic & Peter L. Rousseau, 2000. "Vintage organization capital," Proceedings, Federal Reserve Bank of San Francisco, issue Apr. [Downloadable!]
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  3. Quah, Danny, 1993. "Galton's Fallacy and Tests of the Convergence Hypothesis," CEPR Discussion Papers 820, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Z, Griliches ; Jacques Mairesse, . "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique. [Downloadable!]
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  5. Tor Jakob Klette & Zvi Griliches, 1997. "Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," NBER Working Papers 5945, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September. [Downloadable!] (restricted)
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  9. Erik Biørn and Tor Jakob Klette, 1994. "Errors in Variables and Panel Data: The Labour Demand Response to Permanent Changes in Output," Discussion Papers 125, Research Department of Statistics Norway.
  10. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March. [Downloadable!] (restricted)
  11. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December. [Downloadable!] (restricted)
  12. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall. [Downloadable!] (restricted)
  13. John Fitzgerald & Peter Gottschalk & Robert Moffit, 1999. "Sample Attrition in Panel Data: The Role of Selection on Observables," Annales d'Economie et de Statistique, ADRES, issue 55-56, pages 06, Juillet-D. [Downloadable!]
  14. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Lambson, Val Eugene, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 125-42, January. [Downloadable!] (restricted)
  16. John M. Abowd & Bruno Crepon & Francis Kramarz, 1997. "Moment Estimation with Attrition," NBER Technical Working Papers 0214, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Pakes, A. & Ericson, R., 1990. "Empirical Implications Of Alternative Models Of Firm Dynamics," Papers 594, Yale - Economic Growth Center.
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  18. Leamer, Edward E., 1983. "Model choice and specification analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 5, pages 285-330 Elsevier. [Downloadable!] (restricted)
  19. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  20. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies. [Downloadable!]
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  21. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June. [Downloadable!] (restricted)
  22. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February. [Downloadable!] (restricted)
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  23. Tor Jakob Klette & Samuel Kortum, 2002. "Innovating Firms and Aggregate Innovation," NBER Working Papers 8819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. Heckman, James J, 1991. "Identifying the Hand of the Past: Distinguishing State Dependence from Heterogeneity," American Economic Review, American Economic Association, vol. 81(2), pages 75-79, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hoveid, O. & Raknerud, A., 2008. "Dynamics of income, wealth and capital in Norwegian farm household accounts: A state-space model," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44461, European Association of Agricultural Economists. [Downloadable!]
  2. Annegrete Bruvoll, Torstein Bye, Jan Larsson and Kjetil Telle, 2003. "Technological changes in the pulp and paper industry and the role of uniform versus selective environmental policy," Discussion Papers 357, Research Department of Statistics Norway. [Downloadable!]
  3. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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