A structural model of establishment and industry evolution : evidence from Chile
AbstractMany recent models have been developed to fit the basic facts on establishment and industry evolution. While these models yield a simple interpretation of the basic features of the data, they are too stylized to confront the micro-level data in a more formal quantitative analysis. In this paper, the author develops a model in which establishments grow by innovating new products. By introducing heterogeneity to a stylized industry evolution model, the analysis succeeds in explaining several features of the data, such as the thick right tail of the size distribution and the relations between age, size, and the hazard rate of exit, which had eluded existing models. In the model, heterogeneity in producer behavior arises through a combination of exogenous efficiency differences and accumulated innovations resulting from past endogenous research and development investments. Integrating these forces allows the model to perform well quantitatively in fitting data on Chilean manufacturers. The counterfactual experiments show how producers respond to research and development subsidies and more competitive market environments.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4947.
Date of creation: 01 Jun 2009
Date of revision:
Water and Industry; Science Education; Scientific Research&Science Parks; Markets and Market Access; Industrial Management;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-10 (All new papers)
- NEP-DEV-2009-06-10 (Development)
- NEP-TID-2009-06-10 (Technology & Industrial Dynamics)
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- Seker, Murat, 2011. "Effects of licensing reform on firm innovation : evidence from India," Policy Research Working Paper Series 5876, The World Bank.
- Erzo G.J. Luttmer, 2010.
"On the mechanics of firm growth,"
440, Federal Reserve Bank of Minneapolis.
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