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Technology diffusion and growth

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  • Luttmer, Erzo G.J.

Abstract

Suppose firms are subject to decreasing returns and permanent idiosyncratic productivity shocks. Suppose also firms can only stay in business by continuously paying a fixed cost. New firms can enter. Firms with a history of relatively good productivity shocks tend to survive and others are forced to exit. This paper identifies assumptions about entry that guarantee a stationary firm size distribution and lead to balanced growth. The range of technology diffusion mechanisms that can be considered is greatly expanded relative to Luttmer (2007) [21]. If entrants can make only small improvements over the technologies used by the least productive incumbents, then the firm size distribution approximates Zipfʼs law and entry and exit rates are high, as in the data.

Suggested Citation

  • Luttmer, Erzo G.J., 2012. "Technology diffusion and growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 602-622.
  • Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:602-622 DOI: 10.1016/j.jet.2011.02.003
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    1. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    2. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    3. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1103-1144.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    5. Boldrin, Michele & Levine, David K., 2002. "Factor Saving Innovation," Journal of Economic Theory, Elsevier, vol. 105(1), pages 18-41, July.
    6. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211-211.
    7. Erzo G.J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 547-576, September.
    8. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
    9. Erzo G. J. Luttmer, 2011. "On the Mechanics of Firm Growth," Review of Economic Studies, Oxford University Press, pages 1042-1068.
    10. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    11. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    12. Eaton, Jonathan & Kortum, Samuel, 1999. "International Technology Diffusion: Theory and Measurement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 537-570, August.
    13. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
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    Cited by:

    1. Robert E. Lucas Jr. & Benjamin Moll, 2014. "Knowledge Growth and the Allocation of Time," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 1-51.
    2. Impullitti, Giammario & Irarrazabal, Alfonso A. & Opromolla, Luca David, 2013. "A theory of entry into and exit from export markets," Journal of International Economics, Elsevier, pages 75-90.
    3. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0017-3 is not listed on IDEAS
    4. Carvalho, Vasco M & Grassi, Basile, 2015. "Large Firm Dynamics and the Business Cycle," CEPR Discussion Papers 10587, C.E.P.R. Discussion Papers.
    5. Acemoglu, Daron & Cao, Dan, 2015. "Innovation by entrants and incumbents," Journal of Economic Theory, Elsevier, vol. 157(C), pages 255-294.
    6. Jean Imbs & Basile Grassi, 2015. "Why Do Risky Sectors Grow Fast?," 2015 Meeting Papers 449, Society for Economic Dynamics.
    7. Erzo G.J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 547-576, September.
    8. Barney Hartman-Glaser & Hanno Lustig & Mindy X. Zhang, 2016. "Capital Share Dynamics When Firms Insure Workers," NBER Working Papers 22651, National Bureau of Economic Research, Inc.
    9. Basile Grassi & Vasco Carvalho, 2015. "Firm Dynamics and the Granular Hypothesis," 2015 Meeting Papers 617, Society for Economic Dynamics.
    10. 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, pages 249-273.
    11. Acemoglu, Daron, 2012. "Introduction to economic growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 545-550.
    12. Ghiglino, Christian, 2012. "Random walk to innovation: Why productivity follows a power law," Journal of Economic Theory, Elsevier, vol. 147(2), pages 713-737.
    13. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
    14. Hengjie Ai & Rui Li, 2012. "Moral hazard, investment, and firm dynamics," FRB Atlanta CQER Working Paper 2012-01, Federal Reserve Bank of Atlanta.

    More about this item

    Keywords

    Productivity; Imitation; Selection; Diffusion;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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