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Models of Growth and Firm Heterogeneity

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  • Erzo G.J. Luttmer

    () (Department of Economics, University of Minnesota, Minneapolis, Minnesota 55455, and Federal Reserve Bank of Minneapolis)

Abstract

Although employment at individual firms tends to be highly nonstationary, the employment size distribution of all firms in the United States appears to be stationary. It closely resembles a Pareto distribution. There is a lot of entry and exit, mostly of small firms. This review surveys general equilibrium models that can be used to interpret these facts and explores the role of innovation by new and incumbent firms in determining aggregate growth. The existence of a balanced growth path with a stationary employment size distribution depends crucially on assumptions made about the cost of entry. Some type of labor must be an essential input in setting up new firms.

Suggested Citation

  • Erzo G.J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 547-576, September.
  • Handle: RePEc:anr:reveco:v:2:y:2010:p:547-576
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    Cited by:

    1. Shuhei Aoki & Makoto Nirei, 2014. "Zipf’s Law, Pareto’s Law, and the Evolution of Top Incomes in the U.S," UTokyo Price Project Working Paper Series 023, University of Tokyo, Graduate School of Economics.
    2. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2013. "Price Dynamics with Customer Markets," EIEF Working Papers Series 1328, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2017.
    3. Jack Rossbach, 2015. "Good Policy or Good Firms? International Competition and Aggregate Growth in a Granular World," 2015 Meeting Papers 1311, Society for Economic Dynamics.
    4. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, Elsevier.
    5. Nicholas Trachter & Andrea Pozzi & Luigi Paciello, 2014. "Markups Dynamics with Customer Markets," 2014 Meeting Papers 39, Society for Economic Dynamics.
    6. Carvalho, Vasco M & Grassi, Basile, 2015. "Large Firm Dynamics and the Business Cycle," CEPR Discussion Papers 10587, C.E.P.R. Discussion Papers.
    7. Kazuo Mino, 2016. "Fiscal Policy in a Growing Economy with Financial Frictions and Firm Heterogeneity," The Japanese Economic Review, Japanese Economic Association, vol. 67(1), pages 3-30, March.
    8. Jean Imbs & Basile Grassi, 2015. "Why Do Risky Sectors Grow Fast?," 2015 Meeting Papers 449, Society for Economic Dynamics.
    9. Luttmer, Erzo G.J., 2012. "Technology diffusion and growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 602-622.
    10. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0017-3 is not listed on IDEAS
    11. Peters, Michael, 2013. "Heterogeneous mark-ups, growth and endogenous misallocation," LSE Research Online Documents on Economics 54254, London School of Economics and Political Science, LSE Library.
    12. Roberto Fattal Jaef & Francisco Buera, 2015. "The Dynamics of Development: Entrepreneurship, Innovation, and Reallocation," 2015 Meeting Papers 274, Society for Economic Dynamics.
    13. Basile Grassi & Vasco Carvalho, 2015. "Firm Dynamics and the Granular Hypothesis," 2015 Meeting Papers 617, Society for Economic Dynamics.
    14. Elhanan Helpman & Oleg Itskhoki, "undated". "Trade Liberalization and Labor Market Dynamics with Heterogeneous Firms," Working Paper 199161, Harvard University OpenScholar.
    15. Marcin Bielecki, 2017. "Business cycles, innovation and growth: welfare analysis," Working Papers 2017-19, Faculty of Economic Sciences, University of Warsaw.
    16. repec:tou:journl:v:45:y:2017:p:31-58 is not listed on IDEAS
    17. Loris Rubini & Klaus Desmet & Facundo Piguillem & Aranzazu Crespo, . "Breaking down the barriers to firmgrowth in Europe The fourth EFIGE policy report," Blueprints, Bruegel, number 744, November.
    18. José-María Da-Rocha & Jaume Sempere, 2017. "ITQs, Firm Dynamics and Wealth Distribution: Does Full Tradability Increase Inequality?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(2), pages 249-273, October.

    More about this item

    Keywords

    firm size distribution; organization capital; heterogeneous productivity; selection;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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