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Heterogeneous Firms, Productivity, and Poverty Traps

Author

Listed:
  • Riccardo DiCecio

    (FRB of St. Louis)

  • Levon Barseghyan

    (Cornell University)

Abstract

We present a model of endogenous total factor productivity which generates poverty traps. We obtain multiple steady-state equilibria for an arbitrarily small degree of increasing returns to scale. While the most productive firms operate across all the steady states, in a poverty trap less productive firms operate as well. This results in lower average firm productivity and lower total factor productivity. In our model a growth miracle is accompanied by a shift of employment from small to large firms, consistent with the empirical evidence. We calibrate our model and relate entry costs to the price of investment goods. The resulting distributions of output, TFP, and capital-to-output ratio across steady states are similar to the ergodic distributions we estimate from the data.

Suggested Citation

  • Riccardo DiCecio & Levon Barseghyan, 2007. "Heterogeneous Firms, Productivity, and Poverty Traps," 2007 Meeting Papers 769, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:769
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    Cited by:

    1. Barseghyan, Levon & DiCecio, Riccardo, 2016. "Externalities, endogenous productivity, and poverty traps," European Economic Review, Elsevier, vol. 85(C), pages 112-126.
    2. Chen, Kaiji & Song, Zheng, 2013. "Financial frictions on capital allocation: A transmission mechanism of TFP fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 683-703.
    3. Zheng Song & Kaiji Chen, 2007. "Capital Reallocation, Productivity, and Expectation-Driven Business Cycles," 2007 Meeting Papers 512, Society for Economic Dynamics.
    4. Chen, Kaiji & Song, Zheng, 2007. "Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles," MPRA Paper 3889, University Library of Munich, Germany.

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