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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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    File URL: http://dx.doi.org/10.1016/j.red.2017.06.001
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Learning; Firm Growth; Firm Subsidies; Welfare;
    All these keywords.

    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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