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Becoming obsolete: Bankruptcy through technological progress

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  • Kleinert, Barbara

Abstract

This paper studies product obsolescence, the entry and exit of firms, and the evolution of firm size as foundation of endogenous economic growth. I develop a dynamic general equilibrium model with heterogenous firms to analyze firm behavior in an economic environment that is characterized by a growing knowledge base. It uses a simple mechanism of knowledge diffusion that induces growth of the general knowledge base. The growing knowledge base forces small firms using the least knowledge intensive production processes to leave the economy, since competition from new entrants is tougher, since they developed their products starting from a larger knowledge base. Exiting firms are found to be smaller and less productive than survivors. Another main insight of the model is the evolution of a cohort's firm size distribution.

Suggested Citation

  • Kleinert, Barbara, 2011. "Becoming obsolete: Bankruptcy through technological progress," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 49163, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc11:49163
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    More about this item

    Keywords

    economic growth; product obsolescence; firm dynamics; firm size distribution;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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