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Models of Growth and Firm Heterogeneity

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  • Erzo G. J. Luttmer

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

Abstract

Although 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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File URL: http://www.econ.umn.edu/merr/2010_1.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by University of Minnesota, Department of Economics in its series Working Papers with number 2010-1.

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Length: 41 pages
Date of creation: 04 2010
Date of revision:
Handle: RePEc:min:wpaper:2010-1

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

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Citations

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Cited by:
  1. Marc J. Melitz & Stephen J. Redding, 2012. "Heterogeneous firms and trade," LSE Research Online Documents on Economics 48928, London School of Economics and Political Science, LSE Library.
  2. Erzo G.J. Luttmer, 2009. "Technology diffusion and growth," Working Papers 672, Federal Reserve Bank of Minneapolis.
  3. 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.
  4. 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, October.

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