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Heterogeneous Productivity Shocks, Elasticity of Substitution and Aggregate Fluctuations

Listed author(s):
  • Alessio, Moro
  • Rodolfo, Stucchi

We use a Dixit-Stiglitz setting to show that aggregate productivity fluctuations can be generated through changes in the dispersion of firms' productivity. When the elasticity of substitution among goods is larger than one, an increase in the dispersion raises aggregate productivity because firms at the top of the distribution produce most of output. When the elasticity is smaller than one, an increase in the dispersion reduces aggregate productivity because firms at the bottom of the distribution use most of inputs. We use individual firm data from Spanish manufacturing sectors to test the relationship between the dispersion of firms' productivity and aggregate productivity. The estimated coefficients are consistent with the predictions of the model: we find that an increase in the coefficient of variation of firms productivity of 1% increases aggregate productivity by 0.59% in sectors with an elasticity of substitution larger than one while the same increase in the coefficient of variation reduces aggregate productivity by 0.07% in sectors with an elasticity of substitution smaller than one.

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File URL: https://mpra.ub.uni-muenchen.de/29032/1/MPRA_paper_29032.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29032.

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Date of creation: Feb 2011
Handle: RePEc:pra:mprapa:29032
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  1. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2014. "Really Uncertain Business Cycles," Working Papers 14-18, Center for Economic Studies, U.S. Census Bureau.
  2. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
  3. Vasco Carvalho, 2007. "Aggregate fluctuations and the network structure of intersectoral trade," Economics Working Papers 1206, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2010.
  4. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings 508, Econometric Society.
  5. Guner, Nezih & Ventura, Gustavo & Xu, Yi (Daniel), 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers.
  6. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics.
  7. Rachel Griffith & Jonathan Haskel & Andy Neely, 2006. "Why is Productivity so Dispersed?," Oxford Review of Economic Policy, Oxford University Press, vol. 22(4), pages 513-525, Winter.
  8. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2007. "Consumption and Labour Supply with Partial Insurance: An Analytical Framework," CEPR Discussion Papers 6280, C.E.P.R. Discussion Papers.
  9. Daron Acemoglu & Vasco Carvalho & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2011. "The network origins of aggregate fluctuations," Economics Working Papers 1291, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Ruediger Bachmann & Christian Bayer, 2009. "Firm-Specific Productivity Risk over the Business Cycle: Facts and Aggregate Implications," CESifo Working Paper Series 2844, CESifo Group Munich.
  11. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  12. Álvaro Escribano & Rodolfo Stucchi, 2014. "Does recession drive convergence in firms’ productivity? Evidence from Spanish manufacturing firms," Journal of Productivity Analysis, Springer, vol. 41(3), pages 339-349, June.
  13. Stucchi, Rodolfo & Escribano, Álvaro, 2008. "Catching up in total factor productivity through the business cycle : evidence from Spanish manufacturing surveys," UC3M Working papers. Economics we085125, Universidad Carlos III de Madrid. Departamento de Economía.
  14. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
  15. Harald Uhlig, 2010. "A Law of Large Numbers for Large Economies," Levine's Working Paper Archive 2070, David K. Levine.
  16. Dupor, Bill, 1999. "Aggregation and irrelevance in multi-sector models," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 391-409, April.
  17. Ulrich Doraszelski & Jordi Jaumandreu, 2013. "R&D and Productivity: Estimating Endogenous Productivity," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1338-1383.
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