Models of Growth and Firm Heterogeneity

Erzo Luttmer

Annual Review of Economics, 2010, vol. 2, issue 1, 547-576

Abstract: Although employment at individual firms tends to be highly nonstationary, the employment size distribution of all firms in the United States appears to be stationary. It closely resembles a Pareto distribution. There is a lot of entry and exit, mostly of small firms. This review surveys general equilibrium models that can be used to interpret these facts and explores the role of innovation by new and incumbent firms in determining aggregate growth. The existence of a balanced growth path with a stationary employment size distribution depends crucially on assumptions made about the cost of entry. Some type of labor must be an essential input in setting up new firms.

Keywords: firm size distribution; organization capital; heterogeneous productivity; selection (search for similar items in EconPapers)
JEL-codes: D23 L11 L25 M13 O31 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (69)

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