An Overlapping-Generations Model of Firm Heterogeneity in Economic Development

Yu Chen and Haiwen Zhou
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Yu Chen: Department of Economics, University of Macau, Macau, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2017, vol. 12, issue 4, 660-676

Abstract: We study firm heterogeneity in economic development in an overlapping-generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. Individuals differ in their productivities in the manufacturing sector and choose to become entrepreneurs or workers. The model is surprisingly tractable. In the steady state, an increase in the entry barrier in the manufacturing sector or an increase in the percentage of income spent on the agricultural good decreases the wage rate, but the level of output in the manufacturing sector does not necessarily decrease. An increase in the degree of patience of an individual increases the steady state wage rate and the capital stock. Even with increasing returns in manufacturing and constant returns in agriculture, neither the wage rate nor the output level in the manufacturing sector may increase with population size.

Keywords: firm heterogeneity; overlapping-generations model; oligopolistic competition; career choice; economic development (search for similar items in EconPapers)
JEL-codes: D43 L13 O10 (search for similar items in EconPapers)
Date: 2017
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http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0027-5 (application/pdf)

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Working Paper: An Overlapping-Generations Model of Firm Heterogeneity in Economic Development (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:12:y:2017:i:4:p:660-676

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