Firm Learning and Growth

Costas Arkolakis, Theodore Papageorgiou and Olga Timoshenko

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: We develop a general equilibrium model of firm growth with learning about unobserved demand. Our framework introduces learned (Jovanovic, 1982) into a monopolistically competitive environment iwht firm productivity heterogeneity, á la Melitz (2003). The model correctly predicts that firm growth rates decrease with age, hoding size constant, a fact that models focusing on idiosyncratic productivity shcoks have difficulty matching. We calibrate the model using Colombian plant-level data and find that it matches growth and survival patterns well. Unlike the standard Melitz setup the model with learning is no longer efficient, leaving room for welfare improving policies. We illustrate how subsidies to the fixed costs of young firms can be welfare enhancing: they allow young firms to avoid early exit and thus, benefit consumers through access to a larger number of varieties.

Keywords: Firm dynamics; growth; learning (search for similar items in EconPapers)
JEL-codes: F12 F14 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2015-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Related works:
Journal Article: Firm Learning and Growth (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2015-5

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