Slow Convergence in Economies with Organization Capital

Erzo Luttmer

No 748, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of capital accumulation-organization capital. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This means that most capital accumulation must be accounted for by incumbent firms. This paper describes a range of circumstances in which this implies aggregate convergence rates that are only about half of what they are in the standard Cass-Koopmans economy. Through the lens of the models described in this paper, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital.

Keywords: Business cycles; Firm size distribution; Slow recoveries; Zipf's law (search for similar items in EconPapers)
JEL-codes: E32 L11 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2018-01-19
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Slow Convergence in Economies with Organization Capital (2019)
Working Paper: Slow Convergence in Economies with Organization Capital (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:748

DOI: 10.21034/wp.748

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