Becoming obsolete: Bankruptcy through technological progress

Barbara Kleinert

VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis from Verein für Socialpolitik / German Economic Association

Abstract: This paper studies product obsolescence, the entry and exit of firms, and the evolution of firm size as foundation of endogenous economic growth. I develop a dynamic general equilibrium model with heterogenous firms to analyze firm behavior in an economic environment that is characterized by a growing knowledge base. It uses a simple mechanism of knowledge diffusion that induces growth of the general knowledge base. The growing knowledge base forces small firms using the least knowledge intensive production processes to leave the economy, since competition from new entrants is tougher, since they developed their products starting from a larger knowledge base. Exiting firms are found to be smaller and less productive than survivors. Another main insight of the model is the evolution of a cohort's firm size distribution.

Keywords: economic growth; product obsolescence; firm dynamics; firm size distribution (search for similar items in EconPapers)
JEL-codes: L11 O30 O40 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc11:49163

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