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Models of Growth and Firm Heterogeneity

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  • Erzo G. J. Luttmer

    (Department of Economics, University of Minnesota and Federal Reserve Bank of Minnesota)

Abstract

Although employment at individual firms tends to be highly non-stationary, the employment size distribution of all firms in the United States appears to be stationary. It closely resembles a Pareto distribution. There is a lot of entry and exit, mostly of small firms. This paper surveys general equilibrium models that can be used to interpret these facts and explores the role of innovation by new and incumbent firms in determining aggregate growth. The existence of a balanced growth path with a stationary employment size distribution depends crucially on assumptions made about the cost of entry. Some type of labor must be an essential input in setting up new firms.

Suggested Citation

  • Erzo G. J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Working Papers 2010-1, University of Minnesota, Department of Economics.
    • Handle: RePEc:min:wpaper:2010-1
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    More about this item

    Keywords

    firm size distribution; organization capital; heterogeneous productivity; selection.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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