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Heterogeneity, productivity and selection: an empirical study of Norwegian manufacturing firms

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Abstract

How do firms differ, and why do they differ even within narrowly defined industries? Using evidence from a new panel data set for four high-tech, manufacturing industries covering a 10-year period, we show how differences in sales, materials, labor costs and capital across firms can be summarized by firm-specific, dynamic factors, which we interpret in view of a structural model. The model contains the complete system of supply and factor demand equations. Our results show that a firm's efficiency is strongly linked to profitability and firm size, but only weakly related to labor productivity. Our second task is to understand the origin and evolution of the differences in efficiency. Among the firms established within the 10-year period that we consider permanent differences in efficiency dominate over differences generated by firm-specific, cumulated innovations.

Suggested Citation

  • Tor Jakob Klette & Arvid Raknerud, 2005. "Heterogeneity, productivity and selection: an empirical study of Norwegian manufacturing firms," Discussion Papers 401, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:401
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp401.pdf
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    1. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
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    Cited by:

    1. Torstein Bye & Erling Erling Holmoy, 2010. "Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 177-198.
    2. Erling Holmøy & Kim Massey Heide, 2005. "Is Norway immune to Dutch Disease? CGE Estimates of Sustainable Wage Growth and De-industrialisation," Discussion Papers 413, Statistics Norway, Research Department.
    3. Hans Lööf, 2011. "R&D-Persistency, Metropolitan Externalities and Productivity," ERSA conference papers ersa11p1396, European Regional Science Association.

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    More about this item

    Keywords

    efficiency; firm heterogeneity; labor productivity; permanent differences; firm-specific innovations; attrition; maximum likelihood;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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