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Frontiers of Economics in China

Front. Econ. China    2017, Vol. 12 Issue (4) : 660-676
Orginal Article
An Overlapping-Generations Model of Firm Heterogeneity in Economic Development
Yu Chen1, Haiwen Zhou2()
1. Department of Economics, University of Macau, Macau, China
2. Department of Economics, Old Dominion University, Norfolk, VA 23529, USA
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We study firm heterogeneity in economic development in an overlapping-generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. Individuals differ in their productivities in the manufacturing sector and choose to become entrepreneurs or workers. The model is surprisingly tractable. In the steady state, an increase in the entry barrier in the manufacturing sector or an increase in the percentage of income spent on the agricultural good decreases the wage rate, but the level of output in the manufacturing sector does not necessarily decrease. An increase in the degree of patience of an individual increases the steady state wage rate and the capital stock. Even with increasing returns in manufacturing and constant returns in agriculture, neither the wage rate nor the output level in the manufacturing sector may increase with population size.

Keywords firm heterogeneity      overlapping-generations model      oligopolistic competition      career choice      economic development     
Issue Date: 08 December 2017
 Cite this article:   
Yu Chen,Haiwen Zhou. An Overlapping-Generations Model of Firm Heterogeneity in Economic Development[J]. Front. Econ. China, 2017, 12(4): 660-676.
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