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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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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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File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp198.pdf
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Bibliographic 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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Keywords: Productivity; Heterogeneity; Aggregation; Monopolistic competition;

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References

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  1. Tor Jakob Klette & Astrid Mathiassen, 1995. "Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing," Discussion Papers 136, Research Department of Statistics Norway.
  2. Krugman, Paul, 2008. "Increasing returns," Nobel Prize in Economics documents 2008-3, Nobel Prize Committee.
  3. Montagna, Catia, 1995. "Monopolistic Competition with Firm-Specific Costs," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 318-28, April.
  4. Tor Jakob Klette, 1994. "Estimating Price- Cost Margins and Scale Economies from a Panel of Microdata," Discussion Papers 130, Research Department of Statistics Norway.
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Cited by:
  1. Torstein Bye & Erling Erling Holmoy, 2010. "Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 177-198.
  2. Erling Holmøy & Torbjørn Hægeland, 2000. "Aggregate Productivity and Heterogeneous Firms," Discussion Papers 266, Research Department of Statistics Norway.
  3. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, Elsevier.
  4. Brita Bye & Taran Fæhn & Tom-Reiel Heggedal, 2007. "Welfare and growth impacts of innovation policies in a small, open economy. An applied general equilibrium analysis," Discussion Papers 510, Research Department of Statistics Norway.
  5. Erling Holmøy & Kim Massey Heide, 2005. "Is Norway immune to Dutch Disease? CGE Estimates of Sustainable Wage Growth and De-industrialisation," Discussion Papers 413, Research Department of Statistics Norway.
  6. Erling Holmøy, 2003. "Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms," Discussion Papers 352, Research Department of Statistics Norway.
  7. Taran Fæhn & 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.
  8. Bye, Brita & Fæhn, Taran & Heggedal, Tom-Reiel, 2009. "Welfare and growth impacts of innovation policies in a small, open economy; an applied general equilibrium analysis," Economic Modelling, Elsevier, vol. 26(5), pages 1075-1088, September.
  9. Taran Fæhn & 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.

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