Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments
This paper studies how productivity shifts at the level of the firm are transmitted to aggregate industry productivity in a model of heterogeneous firms. We analyse both uniform productivity shifts, and catching up by reducing the productivity differentials between firms. The two kinds of shifts affect aggregate productivity in different ways and through different mechanisms. Endogenous equilibrium adjustments play a crucial role for the influence on aggregate productivity. Moreover, when firms sell their output to several markets, and their market power differs between markets, aggregate productivity may be inversely related to productivity at the firm level. A by-product of the analysis is to demonstrate that productivity heterogeneity can be incorporated in the standard model of monopolistic competition at a low cost in terms of analytical tractability.
|Date of creation:||Jul 1997|
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- Tor Jakob Klette & Astrid Mathiassen, 1996.
"Job Creation, Job Destruction and Plant Turnover in Norvegian Manufacturing,"
Annals of Economics and Statistics,
GENES, issue 41-42, pages 97-125.
- Tor Jakob Klette & Astrid Mathiassen, 1995. "Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing," Discussion Papers 136, Statistics Norway, Research Department.
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- H. S. Houthakker, 1955. "The Pareto Distribution and the Cobb-Douglas Production Function in Activity Analysis," Review of Economic Studies, Oxford University Press, vol. 23(1), pages 27-31.
- Krugman, Paul, 2008. "Increasing returns," Nobel Prize in Economics documents 2008-3, Nobel Prize Committee.
- Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
- Tor Jakob Klette, 1994. "Estimating Price- Cost Margins and Scale Economies from a Panel of Microdata," Discussion Papers 130, Statistics Norway, Research Department.
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