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A structural model of establishment and industry evolution : evidence from Chile

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  • Seker, Murat

Abstract

Many recent models have been developed to fit the basic facts on establishment and industry evolution. While these models yield a simple interpretation of the basic features of the data, they are too stylized to confront the micro-level data in a more formal quantitative analysis. In this paper, the author develops a model in which establishments grow by innovating new products. By introducing heterogeneity to a stylized industry evolution model, the analysis succeeds in explaining several features of the data, such as the thick right tail of the size distribution and the relations between age, size, and the hazard rate of exit, which had eluded existing models. In the model, heterogeneity in producer behavior arises through a combination of exogenous efficiency differences and accumulated innovations resulting from past endogenous research and development investments. Integrating these forces allows the model to perform well quantitatively in fitting data on Chilean manufacturers. The counterfactual experiments show how producers respond to research and development subsidies and more competitive market environments.

Suggested Citation

  • Seker, Murat, 2009. "A structural model of establishment and industry evolution : evidence from Chile," Policy Research Working Paper Series 4947, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4947
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    Citations

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    Cited by:

    1. Erzo G. J. Luttmer, 2011. "On the Mechanics of Firm Growth," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1042-1068.
    2. Chen Yeh, 2017. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 17-23, Center for Economic Studies, U.S. Census Bureau.
    3. Seker, Murat, 2011. "Effects of licensing reform on firm innovation : evidence from India," Policy Research Working Paper Series 5876, The World Bank.
    4. Chen Yeh, 2016. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 16-47, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    Keywords

    Water and Industry; Science Education; Scientific Research&Science Parks; Markets and Market Access; Industrial Management;

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