Tor Jakob Klette
How and why do firms differ?.
() and Arvid Raknerud
Abstract: How do firms differ, and why do they di.er even within
narrowly defined industries? Using evidence from six high-tech,
manufacturing industries covering a 24-year period, we show that di.erences
in sales, materials, labor costs and capital across firms can largely be
summarized by a single, firm-specific, dynamic factor, which we label
effciency in the light of our structural model. The model contains the
complete system of supply and factor demand equations. It suggests that
e.ciency is strongly linked to profitability and firm size, but it is
unrelated to labor productivity. Our second task is to understand the
origin and evolution of the differences in effciency. Among the firms
established within the 24 year period that we consider, permanent
differences in efficiency dominate over di.erences generated by
firm-specific, cumulated innovations.
Keywords: effciency; firm heterogeneity; labor productivity; intrinsic differences; firmspecific innovations; state space models; maximum likelihood; (follow links to similar papers)
JEL-Codes: C33; C51; D21; (follow links to similar papers)
42 pages, June 18, 2003
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