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Firm Learning and Growth

Author

Listed:
  • Costas Arkolakis

    (Yale University)

  • Theodore Papageorgiou

    (McGill University)

  • Olga Timoshenko

    (George Washington University)

Abstract

We study the implications of introducing learning (Jovanovic, 1982) in a standard monopolistically competitive environment with firm productivity heterogeneity. Our setup predicts that firm growth rates decrease with age, holding size constant, and decrease with size, holding age constant, a fact that models focusing on idiosyncratic productivity shocks have difficulty matching. We characterize the planner's problem and show that relative quantities between any two firms are the same in both planner's allocation and the decentralized economy. As a result, any inefficiency is driven by a discrepancy in the firm entry and exit thresholds. We calibrate the model using Colombian plant-level data and demonstrate how policies directly affecting firm entry and exit can be welfare enhancing. In particular, age-dependent subsidies allow young firms to avoid early exit and thus benefit consumers through access to a larger number of varieties. (Copyright: Elsevier)

Suggested Citation

  • Costas Arkolakis & Theodore Papageorgiou & Olga Timoshenko, 2018. "Firm Learning and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 146-168, January.
  • Handle: RePEc:red:issued:15-260
    DOI: 10.1016/j.red.2017.06.001
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Claudio Ferraz & Frederico Finan & Dimitri Szerman, 2015. "Procuring Firm Growth: The Effects of Government Purchases on Firm Dynamics," NBER Working Papers 21219, National Bureau of Economic Research, Inc.
    2. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    3. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2016. "Posts as Trade Facilitators," IDB Publications (Working Papers) 94576, Inter-American Development Bank.
    4. Timo Boppart & Peter Klenow & Huiyu Li & Antonin Bergeaud & Philippe Aghion, 2017. "Missing Growth from Creative Destruction," 2017 Meeting Papers 759, Society for Economic Dynamics.
    5. Benjamin W. Pugsley & Petr Sedlacek & Vincent Sterk, 2017. "The Nature of Firm Growth," Discussion Papers 1737, Centre for Macroeconomics (CFM).
    6. Yaniv Yedid-Levi & Stefanie Haller & Doireann Fitzgerald, 2016. "How Exporters Grow," 2016 Meeting Papers 499, Society for Economic Dynamics.
    7. Cebreros Zurita Carlos Alfonso, 2016. "The Rewards of Self-Discovery: Learning and Firm Exporter Dynamics," Working Papers 2016-08, Banco de México.
    8. Spray, J., 2017. "Reorganise, Replace or Expand? The role of the supply-chain in first-time exporting," Cambridge Working Papers in Economics 1741, Faculty of Economics, University of Cambridge.
    9. Titan Alon & David Berger & Robert Dent & Benjamin Pugsley, 2017. "Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth," NBER Working Papers 23875, National Bureau of Economic Research, Inc.
    10. Olga A. Timoshenko & Erick Sager, "undated". "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    11. Chunming Zhao & Qun Zhang, 2016. "Input Trade Liberalization and Export Product Scope: Evidence from China," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 118-132, December.
    12. Olga Timoshenko & Paulo Bastos & Daniel Dias, 2016. "Learning, Prices, and Firm Dynamics," Working Papers 2016-11, The George Washington University, Institute for International Economic Policy.
    13. N. Berman & V. Rebeyrol & V. Vicard, 2015. "Demand learning and firm dynamics: evidence from exporters," Working papers 551, Banque de France.
    14. Timoshenko, Olga A., 2015. "Product switching in a model of learning," Journal of International Economics, Elsevier, vol. 95(2), pages 233-249.
    15. LIU Yang, 2018. "Firm Age, Size, and Employment Dynamics: Evidence from Japanese firms," Discussion papers 18006, Research Institute of Economy, Trade and Industry (RIETI).
    16. Edouard Ribes, 2018. "Growth patterns of professional services firms," Working Papers hal-01762381, HAL.
    17. Chen Yeh, 2017. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 17-23, Center for Economic Studies, U.S. Census Bureau.
    18. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2016. "Posts as Trade Facilitators," IDB Publications (Working Papers) 7681, Inter-American Development Bank.
    19. Chen Yeh, 2016. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 16-47, Center for Economic Studies, U.S. Census Bureau.
    20. Olga A. Timoshenko & Erick Sager, 2016. "The EMG Distribution and Aggregate Trade Elasticities," Working Papers 2016-15, The George Washington University, Institute for International Economic Policy.

    More about this item

    Keywords

    Learning; Firm Growth; Firm Subsidies; Welfare;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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