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Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy

  • Marta Aloi
  • Huw Dixon

This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run transitory productivity dynamic introduced when there is imperfect competition due to changes in capacity utilization. We are able to analyze this in different contexts, including demand and technology shocks, both anticipated and unanticipated.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 02/05.

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Handle: RePEc:yor:yorken:02/05
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  1. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-54, May.
  2. Coto-Martinez, Javier & Dixon, Huw, 2003. "Profits, markups and entry: fiscal policy in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 573-597, February.
  3. Catherine J. Morrison, 1985. "Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach," NBER Working Papers 1561, National Bureau of Economic Research, Inc.
  4. Winston, Gordon C, 1974. "The Theory of Capital Utilization and Idleness," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1301-20, December.
  5. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  6. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
  7. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
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