Heterogeneous firms, productivity and poverty traps

Levon Barseghyan and Riccardo DiCecio

No 2005-068, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We present a model of endogenous total factor productivity which generates poverty traps. We obtain multiple steady-state equilibria for an arbitrarily small degree of increasing returns to scale. While the most productive firms operate across all the steady states, in a poverty trap less productive firms operate as well. This results in lower average firm productivity and lower total factor productivity. In our model a growth miracle is accompanied by a shift of employment from small to large firms, consistent with the empirical evidence. We calibrate our model and relate entry costs to the price of investment goods. The resulting distributions of output, TFP, and capital-to-output ratio across steady states are similar to the ergodic distributions we estimate from the data.

Keywords: Poverty; Production (Economic theory) (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Heterogeneous Firms, Productivity, and Poverty Traps (2007)
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DOI: 10.20955/wp.2005.068

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