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How Firms Grow

Yaniv Yedid-Levi, Stefanie Haller and Doireann Fitzgerald

No 1294, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We document a new set of facts about firm dynamics, separating true dynamics from the appearance of dynamics driven by selection. Conditional on survival, total revenue and the number of markets a firm participates in grow with age. However TFP grows very slowly. Meanwhile, there is no statistically significant relationship between prices and age. We use these facts to motivate a model of firm dynamics, where firms differ in their efficiency, and face frictions in entering and expanding sales in markets. This allows us to address the following question: Do successful firms grow because they produce more efficiently, or because they sell more at a given level of efficiency?

New Economics Papers: this item is included in nep-bec, nep-ent, nep-mkt and nep-sbm
Date: 2017
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