Many 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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Did you know? Each page is provided with a technical contact, in case something is not right with the supplied information. See under "publisher info".