Endogenous Productivity and Multiple Steady States
Federal Reserve Bank of St. Louis - Research Division
July 7, 2008
We endogenize total factor productivity in a neoclassical model with increasing returns to scale. We obtain multiple steady-state equilibria with an arbitrarily small degree of increasing returns to scale. While the most productive firms operate across all the steady states, in a poverty trap less productive firms operate as well. This results in lower average firm productivity and total factor productivity. A calibrated version of our model displays sizable differences in TFP and output across steady state equilibria.
Number of Pages in PDF File: 35
Keywords: endogenous productivity, multiple equilibria, poverty traps
JEL Classification: L16, O11, O33, O40working papers series
Date posted: July 7, 2008
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