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Aggregate Productivity and Heterogeneous Firms

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Author Info
Erling Holmøy and Torbjørn Hægeland () (Statistics Norway)

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Abstract

It is an established fact that firms, even within narrowly defined industries, differ with respect to productivity. In this paper we analyse how observed heterogeneity in productivity is affected by endogenous producer behaviour, and to what extent shifts in firm specific productivity parameters will affect aggregate industry productivity. We find that endogenous producer behaviour and equilibrium adjustments may strongly affect observed productivity of firms and aggregate industry productivity. This makes it problematic to interpret them as structural parameters. The main lesson from the paper is that identification of such parameters should rely on structural models, in which the equilibrium determinants of observable productivity for individual firms, the distribution of output shares over firms, and the number of firms are taken into account. One may otherwise draw very misleading conclusions about changes in structural parameters from observed productivity variations, either between firms or for an industry over time.

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Publisher Info
Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 266.

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Date of creation: Jan 2000
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Handle: RePEc:ssb:dispap:266

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Related research
Keywords: Productivity; Heterogeneity; Aggregation;

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. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
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  2. Montagna, Catia, 1995. "Monopolistic Competition with Firm-Specific Costs," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 318-28, April. [Downloadable!] (restricted)
  3. Erling Holmøy andTorbjørn Hægeland, 1997. "Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments," Discussion Papers 198, Research Department of Statistics Norway. [Downloadable!]
  4. 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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  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-12-11.

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