DP7486 Firm Dynamics Support the Importance of the Embodied Question

Author(s): Alain Gabler, Omar Licandro
Publication Date: October 2009
Keyword(s): endogenous growth, firm entry and exit, investment-specific technological change, selection and imitation
JEL(s): B52, O3, O41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7486

This paper contributes to the literature on both embodied technical progress and firm dynamics, by formulating an endogenous growth model where selection and imitation play a fundamental role in helping capital good producers to learn about the productivity of technologies embodied in new plants. By calibrating the model to some key aggregates particularly relevant for the embodied capital literature, among them the growth rate of the relative investment price, the model quantitatively replicates the main facts associated to firm dynamics, such as the entry rate and the tail index of the establishment size distribution. In line with the previous literature, it also predicts a contribution to productivity growth of embodied technical progress and selection of around 60%.