Measured productivity with endogenous markups and economic profits

Anthony Savagar

Journal of Economic Dynamics and Control, 2021, vol. 133, issue C

Abstract: I study the effect of dynamic firm entry, scale economies and oligopolistic competition on measured productivity. These features cause endogenous, procyclical, fluctuations in measured productivity (Solow residual). I analytically decompose measured productivity into a pure technology component and an endogenous component. I show that the endogenous component arises because dynamic firm entry and oligopolistic competition cause firms to vary their optimal production which in turn interacts with returns to scale generating productivity effects. I estimate the pure technology series which shows that it is less volatile and more persistent than a standard Solow residual. Lastly, I simulate the model with the pure technology process and show that the model mechanisms generate output amplification relative to a benchmark monopolistic competition, static entry, model.

Keywords: Markups; Firm entry; Productivity; Scale economies; Oligopolistic competition (search for similar items in EconPapers)
JEL-codes: C62 D21 D43 E32 L13 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Measured Productivity with Endogenous Markups and Economic Profits (2021)
Working Paper: Measured Productivity with Endogenous Markups and Economic Profits (2019)
Working Paper: Measured Productivity with Endogenous Markups and Economic Profits (2018)
Working Paper: Firm Dynamics, Dynamic Reallocation, Variable Markups, and Productivity Behaviour (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:133:y:2021:i:c:s0165188921001676

DOI: 10.1016/j.jedc.2021.104232

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