Microeconomic foundations of economic growth at the aggregate

Microeconomic foundations of aggregate
output growth
Lionel Artige
HEC – Université de Liège
Two ways of modeling economic growth
• Aggregate production function:
Output growth results from the growth of aggregate production
factors (capital, labor and technology). Income growth inequalities
are related to factor endowments and technological combinations.
• Aggregate outcome of firm dynamics:
Output growth results from the aggregation of the dynamics of
heterogeneous firms. Income growth inequalities are related to the
degree of heterogeneity and the dynamics of firms. For given
quantities of aggregate capital and labor, for given available
technologies, aggregate growth depends on the firms’ dynamics.
Aggregate Output growth
Macroeconomic level
Distribution of firms’ growth rates
Market structure
Spatial location
(agglomeration externalities)
conditional on
Firms’ growth
Surviving = g(age, size, sector, …)
Exiting = f(age, size, sector, …)
Microeconomic level
Heterogeneous firms
New (entry)
Existing (surviving)

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