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Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments

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Author Info
Erling Holmøy andTorbjørn Hægeland (Statistics Norway)

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Abstract

This paper studies how productivity shifts at the level of the firm are transmitted to aggregate industry productivity in a model of heterogeneous firms. We analyse both uniform productivity shifts, and catching up by reducing the productivity differentials between firms. The two kinds of shifts affect aggregate productivity in different ways and through different mechanisms. Endogenous equilibrium adjustments play a crucial role for the influence on aggregate productivity. Moreover, when firms sell their output to several markets, and their market power differs between markets, aggregate productivity may be inversely related to productivity at the firm level. A by-product of the analysis is to demonstrate that productivity heterogeneity can be incorporated in the standard model of monopolistic competition at a low cost in terms of analytical tractability.

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Publisher Info
Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 198.

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Date of creation: Jul 1997
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Handle: RePEc:ssb:dispap:198

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Related research
Keywords: Productivity; Heterogeneity; Aggregation; Monopolistic competition;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

References listed on IDEAS
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. Tor Jakob Klette and Astrid Mathiassen, 1995. "Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing," Discussion Papers 136, Research Department of Statistics Norway.
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  2. Tor Jakob Klette, 1994. "Estimating Price- Cost Margins and Scale Economies from a Panel of Microdata," Discussion Papers 130, Research Department of Statistics Norway.
  3. Montagna, Catia, 1995. "Monopolistic Competition with Firm-Specific Costs," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 318-28, April. [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. Taran Fæhn and Erling Holmøy, 1999. "Welfare Effects of Trade Liberalisation in Distorted Economies A Dynamic General Equilibrium Assessment for Norway," Discussion Papers 251, Research Department of Statistics Norway. [Downloadable!]
  2. Rolf Aaberge & Ugo Colombino & Erling Holmøy & Birger Strøm & Tom Wennemo, 2004. "Population ageing and fiscal sustainability: An integrated micro-macro analysis of required tax changes," CHILD Working Papers wp06_04, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY. [Downloadable!]
    Other versions:
  3. Taran Fæhn and Erling Holmøy, 2001. "Trade Liberalisation and Effects on Pollutive Emissions and Waste A General Equilibrium Assessment for Norway," Discussion Papers 298, Research Department of Statistics Norway. [Downloadable!]
  4. Erling Holmøy, 2003. "Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms," Discussion Papers 352, Research Department of Statistics Norway. [Downloadable!]
  5. Erling Holmøy and Torbjørn Hægeland, 2000. "Aggregate Productivity and Heterogeneous Firms," Discussion Papers 266, Research Department of Statistics Norway. [Downloadable!]
Statistics
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