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Quantifying Non-monotonicity in Productivity-Input Relations

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  • Sasan Bakhtiari

    ()
    (School of Economics, The University of New South Wales)

Abstract

It is stylized that productivity and input size should relate positively and monotonically in the long run. In this paper, I present a theory that unifies the role of demand and production to investigate conditions that make this relation a bell-shape. Under the optimality assumption and when establishments operate in the same market, I quantify a simple algebraic condition on demand and production elasticities that governs the relation between productivity and input size. The case where establishments face different demands is also considered using a simple trade model and the implications are shown to be qualitatively the same. Supportive evidence is obtained from plant-level data on ready-mix concrete. Findings of this paper have important implications on how productivity dispersion and size distribution are formed within industries.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2009-11.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2009-11.

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Length: 25 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:swe:wpaper:2009-11

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Keywords: Productivity; Size Distribution; Demand Elasticity; Returns to Scale;

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