Firm Heterogeneity and Endogenous Regional Disparities
Posted: 27 Oct 2008
Date Written: November 2008
We exploit the census of Romanian firms in order to provide a microfounded analysis of the sources of regional disparities in the country during the transition period, 1996–2001. To this extent, we adapt to the regional case a decomposition of firm-level output/value added dynamics based on semi-parametric productivity estimates. The methodology, robust to different techniques of TFP estimation, allows us to analyse the sources of regional disparities controlling for the heterogeneity in firms’ characteristics. We find that the emergence of regional disparities is to a large extent endogenous to the interaction between the restructuring activity of incumbent heterogeneous firms and the initial distribution of economic activities. A lesser role is played by the standard drivers of firms’ and workers’ cross-regional reallocation.
Keywords: regional convergence, economic geography, productivity, transition economies
JEL Classification: F12, L10, P20
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