In this paper, we provide a theoretical framework combining both the theory of adoption and industry evolution to explore the different sources of industry efficiency growth. The objective is to investigate which of the explanatory variables can explain inefficiency. The theoretical and simulation results of this study show that the inter-firms efficiency variance exerts a substantial impact on industry efficiency. Productivity change within individual plant (via adoption and learning) is a major source of efficiency growth in the industry. Exit usually improves aggregate efficiency as less efficient plants leave industries. The impact of entry is less clear since it depends on the efficiency levels of entrants. Finally, the role of competition in generating economic efficiency is strongly confirmed. Our theoretical findings confirm and extend others in the empirical studies.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
9546.
Length: Date of creation: Dec 2006 Date of revision: Publication status: Published in The Business Review, Cambridge Number 2.Vol. 6(2006): pp. 1-12 Handle: RePEc:pra:mprapa:9546
Find related papers by JEL classification: O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure O3 - Economic Development, Technological Change, and Growth - - Technological Change
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