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Firm Learning and Growth

Author

Listed:
  • Costas Arkolakis
  • Theodore Papageorgiou
  • Olga A. Timoshenko

Abstract

We develop a general equilibrium model of firm growth with learning about unobserved demand. Our framework introduces learned (Jovanovic, 1982) into a monopolistically competitive environment iwht firm productivity heterogeneity, á la Melitz (2003). The model correctly predicts that firm growth rates decrease with age, hoding size constant, a fact that models focusing on idiosyncratic productivity shcoks have difficulty matching. We calibrate the model using Colombian plant-level data and find that it matches growth and survival patterns well. Unlike the standard Melitz setup the model with learning is no longer efficient, leaving room for welfare improving policies. We illustrate how subsidies to the fixed costs of young firms can be welfare enhancing: they allow young firms to avoid early exit and thus, benefit consumers through access to a larger number of varieties.

Suggested Citation

  • Costas Arkolakis & Theodore Papageorgiou & Olga A. Timoshenko, 2015. "Firm Learning and Growth," Working Papers 2015-5, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2015-5
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    References listed on IDEAS

    as
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    2. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
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    6. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
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    8. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
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    10. 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.
    11. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
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    13. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series 088, FIW.
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    Citations

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    Cited by:

    1. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Benjamin W. Pugsley & Petr Sedlacek & Vincent Sterk, 2017. "The Nature of Firm Growth," Discussion Papers 1737, Centre for Macroeconomics (CFM).
    3. Yaniv Yedid-Levi & Stefanie Haller & Doireann Fitzgerald, 2016. "How Exporters Grow," 2016 Meeting Papers 499, Society for Economic Dynamics.
    4. Cebreros Zurita Carlos Alfonso, 2016. "The Rewards of Self-Discovery: Learning and Firm Exporter Dynamics," Working Papers 2016-08, Banco de México.
    5. LIU Yang, 2018. "Firm Age, Size, and Employment Dynamics: Evidence from Japanese firms," Discussion papers 18006, Research Institute of Economy, Trade and Industry (RIETI).
    6. N. Berman & V. Rebeyrol & V. Vicard, 2015. "Demand learning and firm dynamics: evidence from exporters," Working papers 551, Banque de France.
    7. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    8. Olga A. Timoshenko & Erick Sager, "undated". "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    9. 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.
    10. 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.
    11. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    12. Edouard Ribes, 2018. "Growth patterns of professional services firms," Working Papers hal-01762381, HAL.
    13. 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.
    14. 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.
    15. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2016. "Posts as Trade Facilitators," IDB Publications (Working Papers) 7681, Inter-American Development Bank.
    16. 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.
    17. Timoshenko, Olga A., 2015. "Product switching in a model of learning," Journal of International Economics, Elsevier, vol. 95(2), pages 233-249.
    18. 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.
    19. Robert Dent & David Berger & Benjamin Pugsley & Titan Alon, 2017. "Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth," 2017 Meeting Papers 1224, Society for Economic Dynamics.
    20. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2016. "Posts as Trade Facilitators," IDB Publications (Working Papers) 94576, Inter-American Development Bank.
    21. 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

    Firm dynamics; growth; learning;

    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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