Events

Dr. Julian Neira
Senior Lecturer in Economics
University of Exeter

We provide a novel framework that jointly studies firm dynamics and reallocation of resources across sectors. On the firm side, it features firm entry, exit and growth along with endogenous firm selection. On the sectoral side, it allows for an arbitrary number of sectors, along with sector-specific firm dynamics and production networks. In this setting, we provide conditions for the existence and uniqueness of equilibrium. We consider the impact of both aggregate and sectoral shocks. The presence of both firm dynamics and sectoral reallocation generates rich transitional dynamics. We apply the framework to understand the post WW-II evolution of US manufacturing. We find that the Baby Boom plays an important role in generating firm entry-exit dynamics by sector. The increase in manufacturing productivity over the same time period spurs substitution of labor for intermediate goods and generates the observed decline in average size by firm age in manufacturing.