Heterogeneous Firms, Productivity, and Poverty Traps

FRB of St. Louis Working Paper No. 2005-068B

44 Pages Posted: 22 Dec 2006

See all articles by Levon Barseghyan

Levon Barseghyan

Cornell University

Riccardo DiCecio

Federal Reserve Bank of St. Louis - Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

We present a model of endogenous total factor productivity which generates poverty traps. We obtain multiple steady-state equilibria for 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 lower total factor productivity. In our model a growth miracle is accompanied by a shift of employment from small to large firms, consistent with the empirical evidence. We calibrate our model and relate entry costs to the price of investment goods. The resulting distributions of output, TFP, and capital-to-output ratio across steady states are similar to the ergodic distributions we estimate from the data.

Keywords: endogenous productivity, multiple equilibria, poverty traps

JEL Classification: L16, O11, O33, O40

Suggested Citation

Barseghyan, Levon and DiCecio, Riccardo, Heterogeneous Firms, Productivity, and Poverty Traps (December 2006). FRB of St. Louis Working Paper No. 2005-068B, Available at SSRN: https://ssrn.com/abstract=953276 or http://dx.doi.org/10.2139/ssrn.953276

Levon Barseghyan (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Riccardo DiCecio

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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