Uneven Firm Growth in a Globalized World [draft] New draft！
Abstract: I develop a two-country endogenous growth model with strategic innovation in domestic and international markets to study how globalization affects uneven firm growth and its implications for industrial concentration and productivity growth in OECD countries. Globalization, characterized by decreasing trade iceberg costs and increasing international knowledge spillovers, creates heterogeneous firm responses based on technological distance from competitors. I estimate the model using patent data, which shows that firms innovate less when lagging behind domestic or global competitors. The model predicts that globalization boosts innovation by domestic leaders more than followers via a market size effect, increasing short-run growth and domestic concentration. However, the induced weaker domestic competition eventually depresses long-run growth: followers and leaders reduce innovation because of discouragement and a diminishing escape-competition motive, respectively.
Abstract: Since the information and communications technology revolution, productivity growth in Southern European countries has been substantially lower than in developed European countries. I document that Southern European firms have lower productivity growth, lower intangible capital growth, and lower leverage than developed European firms. The disparity is larger among smaller firms. To rationalize these findings, I build a model featuring endogenous firm productivity growth through innovation investment and size-dependent financial frictions. Financial frictions lower productivity growth via two channels: innovation investment and misallocation. The model finds that financial frictions account for at least 11% of the aggregate productivity growth difference in the data, mainly via the innovation investment channel. The model also highlights that fast capital and output growth may coexist with slow productivity growth due to firms' tradeoffs in allocating a constrained amount of investment between capital and productivity.
Work in Progress
Work in Progress