Slow Convergence in Economies with Organization Capital

Erzo Luttmer

No 1117, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Most firms begin very small and large firms are the result of typically decades of persistent growth. This 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 very slow aggregate convergence rates, in contrast to the rapid convergence of the Cass-Koopmans economy, given standard calibrations of the aggregate labor share. 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.

Date: 2017
New Economics Papers: this item is included in nep-dge
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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 (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1117

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