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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File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2002/Memo-30-2002.pdf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. Milgrom, Paul & Roberts, John, 1995. "The Economics of Modern Manufacturing: Reply," American Economic Review, American Economic Association, vol. 85(4), pages 997-99, September.
  2. Tor Jakob Klette & Zvi Griliches, 1997. "Empirical Patters of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," Harvard Institute of Economic Research Working Papers 1795, Harvard - Institute of Economic Research.
  3. John M. Abowd & Bruno Crepon & Francis Kramarz, 1997. "Moment Estimation with Attrition," NBER Technical Working Papers 0214, National Bureau of Economic Research, Inc.
  4. Boyan Jovanovic & Peter L. Rousseau, 2000. "Vintage organization capital," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
  5. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  6. 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.
  7. Erik Biørn & Tor Jakob Klette, 1994. "Errors in Variables and Panel Data: The Labour Demand Response to Permanent Changes in Output," Discussion Papers 125, Statistics Norway, Research Department.
  8. Tor Jakob Klette & Samuel Kortum, 2002. "Innovating Firms and Aggregate Innovation," NBER Working Papers 8819, National Bureau of Economic Research, Inc.
  9. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
  10. 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.
  11. 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.
  12. Ariel Pakes & Richard Ericson, 1989. "Empirical Implications of Alternative Models of Firm Dynamics," NBER Working Papers 2893, National Bureau of Economic Research, Inc.
  13. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth. Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372 National Bureau of Economic Research, Inc.
  14. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  15. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  16. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  17. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
  18. repec:adr:anecst:y:1999:i:55-56:p:05 is not listed on IDEAS
  19. Quah, Danny, 1993. "Galton's Fallacy and Tests of the Convergence Hypothesis," CEPR Discussion Papers 820, C.E.P.R. Discussion Papers.
  20. 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.
  21. Tor Jakob Klette & Zvi Griliches, 1998. "Empirical Patterns of Firm Growth and R&D Investment: A QuUality LadderModel Interpretation," NBER Working Papers 6753, National Bureau of Economic Research, Inc.
  22. 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.
  23. Val Eugene Lambson, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 125-142.
  24. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
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