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Models of Growth and Firm Heterogeneity

  • Erzo G. J. Luttmer


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

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.

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Paper provided by University of Minnesota, Department of Economics in its series Working Papers with number 2010-1.

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Length: 41 pages
Date of creation: 04 2010
Date of revision:
Handle: RePEc:min:wpaper:2010-1
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