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How and why do firms differ?

  • Jakob Klette, Tor

    ()

    (Dept. of Economics, University of Oslo)

  • Raknerud, Arvid

    ()

    (Statistics Norway)

How do firms differ, and why do they di.er even within narrowly defined industries? Using evidence from six high-tech, manufacturing industries covering a 24-year period, we show that di.erences in sales, materials, labor costs and capital across firms can largely be summarized by a single, firm-specific, dynamic factor, which we label effciency in the light of our structural model. The model contains the complete system of supply and factor demand equations. It suggests that e.ciency is strongly linked to profitability and firm size, but it is unrelated to labor productivity. Our second task is to understand the origin and evolution of the differences in effciency. Among the firms established within the 24 year period that we consider, permanent differences in efficiency dominate over di.erences generated by firm-specific, cumulated innovations.

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File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2002/Memo-30-2002.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 30/2002.

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Length: 42 pages
Date of creation: 18 Jun 2003
Date of revision:
Handle: RePEc:hhs:osloec:2002_030
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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  1. Pakes, A. & Ericson, R., 1990. "Empirical Implications Of Alternative Models Of Firm Dynamics," Papers 594, Yale - Economic Growth Center.
  2. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
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  4. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
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  8. Klette, T.J. & Griliches, Z., 1998. "Empirical Patterns of Firm Growth and R&D Investment: a Quality Ladder Model Interpretation," Memorandum 23/1998, Oslo University, Department of Economics.
  9. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
  10. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-43, December.
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  13. Tor Jakob Klette & Samuel Kortum, 2002. "Innovating Firms and Aggregate Innovation," NBER Working Papers 8819, National Bureau of Economic Research, Inc.
  14. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
  15. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  16. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  17. Heckman, James J, 1991. "Identifying the Hand of the Past: Distinguishing State Dependence from Heterogeneity," American Economic Review, American Economic Association, vol. 81(2), pages 75-79, May.
  18. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
  19. Boyan Jovanovic & Peter L. Rousseau, 2001. "Vintage Organization Capital," NBER Working Papers 8166, National Bureau of Economic Research, Inc.
  20. Robert MOFFIT & John FITZGERALD & Peter GOTTSCHALK, 1999. "Sample Attrition in Panel Data: The Role of Selection on Observables," Annales d'Economie et de Statistique, ENSAE, issue 55-56, pages 129-152.
  21. Erik Biørn & Tor Jakob Klette, 1994. "Errors in Variables and Panel Data: The Labour Demand Response to Permanent Changes in Output," Discussion Papers 125, Research Department of Statistics Norway.
  22. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  23. Leamer, Edward E., 1983. "Model choice and specification analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 5, pages 285-330 Elsevier.
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