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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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    3. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2013. "Price Dynamics with Customer Markets," EIEF Working Papers Series 1328, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2017.
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    8. Luttmer, Erzo G.J., 2012. "Technology diffusion and growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 602-622.
    9. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, Elsevier.
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    13. Basile Grassi & Vasco Carvalho, 2015. "Firm Dynamics and the Granular Hypothesis," 2015 Meeting Papers 617, Society for Economic Dynamics.
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    19. Distante, Roberta & Petrella, Ivan & Santoro, Emiliano, 2017. "Gibrat's Law and Quantile Regressions: an Application to Firm Growth," EMF Research Papers 16, Economic Modelling and Forecasting Group.
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    21. Elhanan Helpman & Oleg Itskhoki, "undated". "Trade Liberalization and Labor Market Dynamics with Heterogeneous Firms," Working Paper 199161, Harvard University OpenScholar.

    More about this item

    Keywords

    firm size distribution; organization capital; heterogeneous productivity; selection.;

    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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