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An Overlapping-Generations Model of Firm Heterogeneity in Economic Development

Author

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  • Yu Chen

    (Department of Economics, University of Macau, Macau, China)

  • Haiwen Zhou

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

Abstract

We study firm heterogeneity in economic development in an overlapping-generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. Individuals differ in their productivities in the manufacturing sector and choose to become entrepreneurs or workers. The model is surprisingly tractable. In the steady state, an increase in the entry barrier in the manufacturing sector or an increase in the percentage of income spent on the agricultural good decreases the wage rate, but the level of output in the manufacturing sector does not necessarily decrease. An increase in the degree of patience of an individual increases the steady state wage rate and the capital stock. Even with increasing returns in manufacturing and constant returns in agriculture, neither the wage rate nor the output level in the manufacturing sector may increase with population size.

Suggested Citation

  • Yu Chen & Haiwen Zhou, 2017. "An Overlapping-Generations Model of Firm Heterogeneity in Economic Development," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 12(4), pages 660-676, December.
    • Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:660-676
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0027-5
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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