A Structural Model of Establishment and Industry Evolution : Evidence from Chile
Many recent models have been developed to fit the basic facts on establishment and industry evolution. While these models yield a simple interpretation of the basic features of the data, they are too stylized to confront the micro-level data in a m...
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| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090601140227 http://hdl.handle.net/10986/4142 |
| Summary: | Many recent models have been developed
to fit the basic facts on establishment and industry
evolution. While these models yield a simple interpretation
of the basic features of the data, they are too stylized to
confront the micro-level data in a more formal quantitative
analysis. In this paper, the author develops a model in
which establishments grow by innovating new products. By
introducing heterogeneity to a stylized industry evolution
model, the analysis succeeds in explaining several features
of the data, such as the thick right tail of the size
distribution and the relations between age, size, and the
hazard rate of exit, which had eluded existing models. In
the model, heterogeneity in producer behavior arises through
a combination of exogenous efficiency differences and
accumulated innovations resulting from past endogenous
research and development investments. Integrating these
forces allows the model to perform well quantitatively in
fitting data on Chilean manufacturers. The counterfactual
experiments show how producers respond to research and
development subsidies and more competitive market environments. |
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