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How and why do Firms differ?

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  • Tor Jakob Klette
  • Arvid Raknerud

    ()
    (Statistics Norway)

Abstract

How do firms differ, and why do they differ even within narrowly defined industries? Using evidence from six high-tech, manufacturing industries covering a 24-year period, we show that differences in sales, materials, labor costs and capital across firms can largely be summarized by a single, firm-specific, dynamic factor, which we label efficiency in the light of our structural model. The model contains the complete system of supply and factor demand equations. It suggests that efficiency is strongly linked to profitability and firm size, but it is unrelated to labor productivity. Our second task is to understand the origin and evolution of the differences in efficiency. Among the firms established within the 24-year period that we consider, permanent differences in efficiency dominate over differences generated by firm-specific, cumulated innovations.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 320.

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Date of creation: Jul 2002
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Handle: RePEc:ssb:dispap:320

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Keywords: efficiency; firm heterogeneity; labor productivity; intrinsic differences; firm-specific innovations; state space models; maximum likelihood.;

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References

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  1. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(5), pages 986-1018, October.
  2. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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  5. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(3), pages 321-340.
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  7. Zvi Griliches & Tor Jakob Klette, 1999. "Empirical patterns of firm growth and R&D investment: a quality ladder model interpretation," IFS Working Papers, Institute for Fiscal Studies W99/25, Institute for Fiscal Studies.
  8. Lambson, Val Eugene, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 125-42, January.
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  16. Erik Biørn & Tor Jakob Klette, 1994. "Errors in Variables and Panel Data: The Labour Demand Response to Permanent Changes in Output," Discussion Papers, Research Department of Statistics Norway 125, Research Department of Statistics Norway.
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  18. Leamer, Edward E., 1983. "Model choice and specification analysis," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 5, pages 285-330 Elsevier.
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Citations

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Cited by:
  1. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
  2. Şeker, Murat, 2012. "A structural model of firm and industry evolution: Evidence from Chile," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 891-913.
  3. Annegrete Bruvoll & Torstein Bye & Jan Larsson & Kjetil Telle, 2003. "Technological changes in the pulp and paper industry and the role of uniform versus selective environmental policy," Discussion Papers, Research Department of Statistics Norway 357, Research Department of Statistics Norway.
  4. Hoveid, Oyvind & Raknerud, A., 2008. "Dynamics of income, wealth and capital in Norwegian farm household accounts: A state-space model," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44461, European Association of Agricultural Economists.

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