the growth of business firms facts and theory we refer to the framework developed by ijiri and simon 1977 and to the notion of independent submarkets sutton 1998 to provide a simple candidate explanation for the shape of the firm growth distribution based on a model of proportional growth at the level of both the introduction of new products by firms and their size dynamics we exploit the features of a unique longitudinal data set which covers the entire distribution of products and firms in the worldwide pharmaceutical industry to test the model at different levels of aggregation as well as at different time lags econometric investigations show that the model s predictions are in good agreement with empirical evidence jel l11 l65

research development and firm growth empirical evidence from european top r d spending firms abstract following recent literature we present a model of endogenous firm growth with r d investment as one of the main mechanisms of growth our study evidences a positive effect of r d intensity on the sales growth by using ols quantile regressions and gmm system estimators for a sample of 754 european firms for the 2003 2007 period we also find this association is more intense in high growth firms and is especially significant when referring to high technology sectors this paper gives empirical support to those recommendations from policy makers and business leaders for maintaining the r d expenditures especially in high technology sectors even when facing a recession

submarkets and the evolution of market structure we construct a model of industry evolution in which the central force for change is the creation and destruction of submarkets firms expand when they are able to exploit new opportunities that arrive in the form of submarkets they contract and ultimately exit when the submarkets in which they operate are destroyed this simple framework can transparently explain a wide range of well known regularities about industry dynamics most notably the subtle relationships between size age growth and survival data on the laser industry where submarkets are prominent further illustrate the ability of the model to explain distinctive patterns in the evolution of industries and firms

role of residential demand response in modern electricity markets abstract electricity generation must match the demand at each instant following seasonal patterns and instantaneous fluctuations thus one of the biggest drivers of costs and capacity requirements is the electricity demand that occurs during peak periods this paper reviews market related problems of modern electric grids and possible solutions to address them in particular one techno economical solution namely residential demand response programs enabled by a smart grid is analyzed and modeled in detail the implications of this solution from both economic and policy perspectives are discussed the analysis results in several insights first a local optimum does not generally lead to a global optimum especially for complex markets second in this approach there exists a disconnection between the locus of the problem electric utilities and the locus of the solution change of demand third any techno economic solution must be carefully designed and global impact should be evaluated to ensure that the final objective is achieved and fourth two way communication is an essential requirement for the successful deployment of smart grids

entry into pharmaceutical submarkets a bayesian panel probit analysis summary we study entry into pharmaceutical submarkets by using a dynamic panel probit model we develop a bayesian version of wooldridge s approach to dealing with unobserved heterogeneity we distinguish between greenfield entry entry with first product and undifferentiated entry which may take the form of introducing further products we extend the standard reduced form model to consider company size in the submarket and across all submarkets we find that greenfield and undifferentiated entries have different determinants that global and submarket size measures have different effects and that sunk costs often have positive effects on entry due to a commitment mechanism copyright 2012 john wiley sons ltd

a mixed integer linear programming model of a zonal electricity market with a dominant producer we consider a liberalized electricity market divided in zones interconnected by capacitated transmission links where a large dimensional power producer operates we introduce a model for determining the optimal bidding strategies of the large dimensional producer so as to maximize his own market share while guaranteeing an annual profit target and satisfying technical constraints the model determines the optimal medium term resource scheduling and yields the hourly zonal electricity prices as it includes constraints representing the market clearing process in order to compute the global solution the complementarity conditions are formulated as mixed integer linear constraints and the revenue terms are expressed by piece wise linear functions the model can be used for analyzing the behavior of market prices in electricity markets where a large dimensional producer can exert market power it can also be used by investors as a simulation tool for evaluating both the impact on the market and the profitability of investment decisions in the zonal electricity market a case study related to the italian electricity market is discussed

product innovation and firm growth evidence from the integrated circuit industry applied research on growth and innovation seems to suggest that successful innovations do not significantly enhance firm growth this paper tests the hypothesis that the level of observation at which applied research is typically conducted hampers identification of a significant association between innovation and sales growth rates exploiting a unique data set we find that product innovations commercialized in the immediate past positively affect the corporate revenue streams of semiconductor companies

industrial evolution through complementary convergence the case of it security the article addresses the dynamics through which product markets become derailed from early product life cycle plc tracks and engaged in complementary convergence with other product markets or industries we compare and contrast the theories that can explain respectively the plc and the derailing of this cycle into a process of complementary convergence the article challenges the standard industry conception and proposes a distinction between the emergent industrial sector the emergent product market or niche and the industry as a more well established entity based on empirical evidence from the it security sector two trajectories of complementary convergence are identified lower order integration the integration of different product markets in a sectoral context and higher end integration the integration of product markets into the offerings of established industries while young ventures dominate lower order integration incumbents in established industries dominate higher order integration for both trajectories mergers and acquisitions represent a central means for realizing convergence copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the role of credit in the great moderation a multivariate garch approach abstract during the great moderation financial innovation in the us increased the size and scope of credit flows supporting the growth of wealth we hypothesize that spending out of wealth came to finance a wider range of gdp components such that it smoothed gdp both these trends combined would be consistent with a decrease in the volatility of output we suggest testable implications in terms of both growth of credit and output and volatility of growth in a multivariate garch framework we test this view for home mortgages and residential investment we observe unidirectional causality in variance from total output residential investment and non residential output to mortgage lending before but not during the great moderation these findings are consistent with a role for credit dynamics in explaining the great moderation

evolutionary theorizing in economics modern economic analysis oriented toward understanding the workings of economies that make extensive use of markets came into existence with three guiding questions all central in adam smith s 1776 1937 the wealth of nations one question concerned order without any central authority guiding and commanding action how is economic activity coordinated the second question was the challenge of explaining the prevailing constellation of prices inputs and outputs what explains the price of labor and the rent of land the third question addressed the processes of economic progress or development smith and other early economists clearly were impressed by the inventiveness the energy and the growing productivity generated by the evolving market economy how to understand its dynamics the first two questions have defined continuing central concerns of the discipline of economics since they first were posed over two centuries ago when not posed in the context of an economy that is understood as in the process of developing they seem to pull the focus of theorizing toward equilibrium conditions the third question concerned with the processes driving economic progress pulls the theorizing toward an evolutionary orientation the question of economic development has waxed and waned in centrality to the discipline as has the importance of evolutionary theorizing during the first several decades of the twentieth century evolutionary thinking and language was widespread in economics but as one contrasts the economic

fiscal policy and business cycle characteristics in a heterogeneous agent macro model abstract this paper explores the macroeconomic implications of changing fiscal policy in a heterogeneous interacting agent hia model the key contributions to the existing hia complex adaptive trivial system cats literature include the addition of a progressive income tax structure an expanded role for redistribution and a stylized reactive government sector in certain specifications deficit financed tax cuts are shown to effectively shorten recessions while deficit financed spending stimulus is able to lengthen recoveries alternative specifications provide ambiguous support for generalizing the effectiveness of these policy treatments robustness checks support the general findings that increased redistribution towards the unemployed results in higher unemployment rates greater inequality and shorter contractions

an analytical approach to activating demand elasticity with a demand response mechanism abstract the aim of this work is to demonstrate analytically the conditions under which activating the elasticity of consumer demand could benefit social welfare we have developed an analytical equilibrium model to quantify the effect of deploying demand response on social welfare and energy trade the novelty of this research is that it demonstrates the existence of an optimal area for the price signal in which demand response enhances social welfare this optimal area is negatively correlated to the degree of competitiveness of generation technologies and the market size of the system in particular it should be noted that the value of unserved energy or energy reduction which the producers could lose from such a demand response scheme would limit its effectiveness this constraint is even greater if energy trade between countries is limited finally we have demonstrated scope for more aggressive demand response when only considering the impact in terms of consumer surplus

pioneers imitators and generics a simulation model of schumpeterian competition a computer simulation model in the tradition of evolutionary models of technical change is developed in this paper it focuses on r d competition in new product introductions and is based on data for the u s pharmaceutical industry during the 1970s the sensitivity of innovation levels to the rate of generic competition regulatory review time and patent life is examined in the computer simulation experiments these factors are found to have significant long run effects on industry structure and innovation levels

empirical patterns of firm growth and r d investment a quality ladder model interpretation we present a partial equilibrium model of endogenous firm growth with r d investment and stochastic innovation as the engines of growth drawing on the quality ladder models in the macro growth literature and the literature on patent races and the discrete choice models of product differentiation the model fits a number of empirical patterns well including i a skewed size distribution of firms with persistent differences in firm sizes ii firm growth independent of firm size as stated in the so called gibrat s law and iii r d investment proportional to sales

the u curve adjustment hypothesis revisited a review and theoretical framework the cross cultural adjustment research literature has largely been conducted from an atheoretical perspective when a theoretical framework is imposed the u curve adjustment theory has been the one most commonly used the lack of a comprehensive review of the empirical literature on the u curve adjustment theory has allowed scholars to accept or dismiss the theory on grounds other than that of empirical evidence this paper reviews the empirical literature and proposes a theoretical framework and research agenda for future research on cross cultural adjustment

an analysis of stock price reaction to management change in distressed firms abstract this study analyzes excess returns to shareholders at announcement of a change in senior management of distressed firms excess returns are significantly positive which is consistent with the internal corporate control hypothesis that management change following poor performance is associated with gains to shareholders cross sectional tests of the effects reveal a significant title effect and significant interactions between title and appointment of an outside successor and title and firm size these findings present new insights into the circumstances in which external vs internal markets for managers will affect shareholder wealth

business networks and cooperation in international business relationships cooperative relationships between firms can be better understood if they are examined in the context of a network of connected business relationships based on research on business relationships and business networks this paper formulates a lisrel model that analyses cooperation in international business relationships between suppliers and customer firms theory suggests that cooperation can raise the value of business relationships and that business network connections have an impact on cooperation the model is investigated in a sample of 136 international business relationships the analysis shows that relationship profitability is directly affected by relationship commitment and indirectly through commitment by business network connections

industrial dynamics fiscal policy and r d evidence from a computational experiment we present an agent based computational model in which bounded rational firms and workers trade on fully decentralized markets for final goods and labor by means of random matching protocols the model replicates several macroeconomic phenomena regularly observed in the data with aggregate features emerging from the localized interactions of individual entities the model is then used as a computational laboratory to run an experiment on the role of fiscal policy in increasing macroeconomic performance

corporate growth and industrial structures some evidence from the italian manufacturing industry this work analyses the properties of corporate growth in a large longitudinal sample of italian manufacturing firms in particular it focuses on the statistical properties of growth rates and on the influence of proxies for relative efficiency upon relative growth in line with previous work the emergence of fat tails in growth rate distributions and the idiosyncratic nature of autocorrelation coefficients confirm the existence of a structure in the growth process richer than the one normally assumed by the gibrat law hypothesis and suggest the presence of firm specific drivers of growth at the same time there is a remarkable puzzle concerning the absence of any negative relationship between size and growth variance and only weak influences of relative efficiencies upon growth dynamics

ceo successor characteristics and the choice of foreign market entry mode an empirical study based on the upper echelons theory this study of 126 ceo successions and 271 foreign market entry events examines the relationships between successor ceo characteristics and choice of entry mode results indicate that ceo position tenure throughput functional background and international experience are associated with full control entry modes additionally these relationships were observed in the subgroup of high performing firms but not in the low performing subgroup

does classical competition explain the statistical features of firm growth abstract we propose a statistical equilibrium model where the tendency for competition to equalize profit rates results in an exponential power or subbotin distribution the model supports and extends recent evidence on the laplace distribution of firm growth rates

managing international interdependence ceo characteristics in a resource based framework this study s basic argument is that the level of a firm s international interdependence influences the pattern of ceo characteristics ideal for enabling a ceo to contribute to firm performance in

an architectural framework for global talent management a unique characteristic of the multinational corporation is that it comprises a geographically dispersed and culturally differentiated workforce that embodies both firm specific and location specific human capital this article takes an architectural approach to describe how different types of human capital develop from the individual level to the unit level and then to the firm level in order to build a talent portfolio for the multinational corporation depending on the company s strategy multidomestic meganational transnational different configurations of the talent portfolio tend to be emphasized and integrated to achieve competitive advantage implications for theory and practice are discussed and a research agenda is introduced

self organized criticality and economic fluctuations economists have long been interested in explaining the observed instability of economic aggregates though several reasons for variation in the pace of production are easily given such as exogenous variation in tastes or in production possibilities it is hard to see why there should be large variations in those factors that are synchronized across the entire economy instead it seems more likely to suppose that variations in demand or in production costs in different parts of the economy should be largely independent and hence that a law of large numbers would imply that significant variations in aggregate activity relative to the typical size of aggregate activity are not likely to occur an alternative approach proposes that economies possess intrinsically unstable dynamics which even in the absence of external shocks would result in persistent deterministic fluctuations this type of model implies however that aggregate fluctuations should involve motion on a low dimensional attractor while analysis of economic time series has not revealed structure of this kind another alternative proposes that the economy possesses multiple equilibria and that it can therefore switch between equilibria for arbitrary reasons this possibility suffers however from the difficulty that one must explain how people succeed in coordinating their expectations about the times at which a shift should occur here we explore another type of explanation which relies on an entirely different mechanism our proposal is that the effects of many small independent shocks to different sectors of the economy need not cancel out in the aggregate due to the presence of significantly nonlinear strongly localized interactions between different parts of the economy the type of macroscopic instability that can result has been studied by condensed matter physicists under the name of self organized criticality per bak and kan chen 1991 physicists have noted in several contexts the possibility of a critical state in which independent microscopic fluctuations can propagate so as to give rise to instability on a macroscopic scale this is a state in which chain reactions initiated by local disturbances neither damp out over a short distance the subcritical case nor propagate explosively so that the system cannot remain in that state the supercritical case as in the controlled nuclear fission that allows a reactor to generate power without exploding often this has seemed to depend upon parameters being carefully tuned to exactly their critical values in the case of a reactor an elaborate control mechanism is required to keep it near criticality more recently it has been argued that some systems may spontaneously evolve toward a critical state and return to it even if perturbed by an external shock the prototypical example of such selforganized criticality is a sandpile when the slope of the pile is nowhere too steep dropping on additional grains of sand at randomly chosen sites has no macroscopic effects as at most small numbers of grains will shift position in each case however randomly dropping on additional sand will eventually result in the slope of the pile increasing to a critical slope at which point large avalanches can occur in response to the dropping of a single additional grain of sand a sandpile with a slope that is initially greater than the critical slope also evolves toward it in this case through an immediate department of economics university of chicago 1126 east 59th st chicago il 60637 we thank per bak buz brock boyan jovanovic and paul krugman for discussions and the santa fe institute and the nsf for research support 1scheinkman 1990 surveys empirical work on this

on the trade off between real time pricing and the social acceptability costs of demand response abstract dynamic tariff policies have become an essential feature of modern electric grid design the successful implementation of such policies usually depends on overcoming the resistance of end users to real time pricing and its political implications in this paper we review the literature on the social acceptability costs of implementing demand response programs and we discuss the key features of implementing a real time price to energy although the literature acknowledges the existence of a social acceptability cost it does not propose an explicit approach to dealing with this issue a model for investigating the implications of the social acceptability cost is thus introduced and through it we discuss thoroughly the joint impact of the elasticity and externality parameters on the tariff design of a demand response program we explore how the increases in elasticity and in externality effects influence price changes in such programs and how the social acceptability cost could be reduced as a function of pricing policies we conclude by discussing the policy design mechanisms in line with demand elasticity and their role in decreasing price variations to cope with the minimum volatility principle in the presence of policies that penalize high prices there is an even further decrease in price variations

ceo international experience effects on strategic change and firm performance despite the growing importance of ceos international experience ie we have yet to gain sufficient insights into its conceptualization and effect on firm outcomes based on prior research and work experience models we suggest a new framework for measuring ie including three components length of time number of countries and cultural distance along with their interactions drawing upon social and cognitive learning theories we explore the impact of ceos ie on two outcomes strategic change and firm performance we argue that ie components affect the two outcomes by enhancing executives international knowledge and general competencies while international knowledge may affect firm performance directly general competencies may affect firm performance both directly and indirectly through strategic change using a sample of 387 new ceos we found that time abroad had a positive effect on strategic change and firm performance while number of countries and cultural distance positively moderated these relationships additionally we also found that these components affected firm performance both directly and mediated through strategic change our findings have important theoretical implications for the conceptualization and impact of ceos ie and practical implications for executive development and promotion

demand side management and european environmental and energy goals an optimal complementary approach demand side management dsm in electricity markets could improve energy efficiency and achieve environmental targets through controlled consumption for the past 10 years or so dsm programmes have registered significant results however detailed analysis of its real impact as observed by a large number of pilot studies suggests that such programmes need to be fine tuned to suit clearly identified conditions this study aims to provide recommendations for the instruments to be used to prompt demand response with a view to maximizing energy and environmental efficiencies of various countries the present study suggests that different dsm models should be deployed depending on the specific generation mix in any given country beside the natural benefits from cross borders infrastructures dsm improves the flexibility and reliability of the energy system absorbing some shock on generation mix we show efficiency increases with demand response but at a decreasing rate so according to rebound and report effects simple dsm tools could be preferred

international experience in the executive suite the path to prosperity attention is increasingly focused on the potential individual career and firm level benefits of international experience for upper level executives this research examines the relationships between ceo international experience ceo tenure firm internationalization succession events and corporate financial performance results indicate a significant interactive effect between ceo tenure and outside succession on ceo international experience in addition to a relationship with ceo international experience there are two additional interactive effects in the examination of corporate financial performance 1 ceo international experience and the degree of firm internationalization and 2 ceo international experience and ceo succession these interactive effects are evident in accounting and market indicators of corporate financial performance copyright 2000 john wiley sons ltd

corporate growth and industrial dynamics evidence from french manufacturing this work explores basic properties of the size and growth rates distributions of firms at the aggregate and disaggregate levels using an extensive dataset on french manufacturing firms we investigate which properties of firm size distributions and growth dynamics characterize the aggregate dynamics and are at the same time robust under disaggregation our analysis is based on non linear robust regression methods which have never been applied before to this kind of data the growth rates distributions we observe are well described by a subbotin distribution with a shape parameter significantly lower than 1 suggesting a noticeable departure from the laplace behavior reported in previous works on italian and us data at the same time the variance of growth rates depends negatively on size and the relationship does not seem to be linear with larger firms possibly displaying lower variability in their growth dynamics at the disaggregate level we observe significant heterogeneity in the firm size distributions across sectors while the shape of the sectoral growth rates density displays a surprising degree of homogeneity

complexity and empirical economics this article explores the state of interplay between recent efforts to introduce complex systems methods into economics and the understanding of empirical phenomena the empirical side of economic complexity may be divided into three general branches historical studies the identification of power and scaling laws and analyses of social interactions i argue that while providing useful stylised facts none of these empirical approaches has produced compelling evidence that economic contexts exhibit the substantive microstructure or properties of complex systems this failure reflects inadequate attention to identification problems identification analysis should therefore be at the centre of future work on the empirics of complexity

gibrat s law and diversification this article presents an analysis of the growth patterns of the worldwide top 200 firms in the pharmaceutical industry a test of the gibrat s law of proportionate effect is performed and we find in line with previous literature a violation concerning the variance of growth using disaggregated data on sub markets we are however able to show that this violation can be completely accounted for by a diversification effect namely a scale relation between the number of sub markets in which a firm is active and its size to interpret these findings we propose a stochastic branching model of firm diversification consistent with a notion of cumulative corporate competences

what do firms know what do they produce a new look at the relationship between patenting profiles and patterns of product diversification in this work we analyze the relationship between the patterns of firm diversification if any across product lines and across bodies of innovative knowledge proxied by the patent classes where the firm is present putting it more emphatically we investigate the relationship between what a firm does and what a firm knows using a newly developed dataset matching information on patents and products at the firm level we provide evidence concerning firms technological and product scope their relationships the size scaling and coherence properties of diversification itself our analysis shows that typically firms are much more diversified in terms of products than in terms of technologies with their main products more related to the exploitation of their innovative knowledge the scaling properties show that the number of products and technologies increases log linearly with firm size and the directions of diversification themselves display coherence between neighboring activities also at relatively high degrees of diversification these findings are well in tune with a capability based theory of the firm

innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology towards a history friendly model this paper is a first attempt at modelling the long term dynamics of market structure and innovation in the pharmaceutical industry in a history friendly way the model examines the relationships between the nature of the search space demand the patterns of competition and industry evolution in the age of random screening and in the age of molecular biology and shows that concentration in the pharmaceutical industry is shaped by lack of cumulativeness in innovative activities and market fragmentation the model conforms to our appreciative understanding and responds to changes in parameters concerning demand costs economies of scale opportunity conditions and the relative advantages of new biotechnology firms nbfs vis a vis incumbents with the exception of cost increases the model is quite robust to these changes in its essential features it is quite difficult to raise substantially concentration and to have nbfs displacing incumbents

market structure r d and advertising in the pharmaceutical industry jungere entwicklungen der literatur zum thema marktstruktur ermoglichen es robuste testbare hypothesen aus der theorie des strategischen verhaltens abzuleiten das grundlegende industrieokonomische modell geht von einer einfachen aber allgemein gultigen beziehung zwischen konzentration und marktgrose aus dabei wird insbesondere der einflus endogener versunkener kosten fur werbung und oder forschung und entwicklung fue auf den wettbewerb untersucht die empirischen ergebnisse dieser fallstudie zeigen das endogene versunkene kosten tatsachlich eine entscheidende rolle fur die herausbildung der marktstruktur in der pharmazeutischen industrie spielen die ergebnisse zeigen jedoch auch das unternehmensspezifische fahigkeiten geeignet sind die reaktionsweisen der unternehmen im wettbewerb zu erklaren

business cycles indicators and forecasting acknowledgments introduction james h stock and mark w watson 1 twenty two years of the nber asa quarterly economic outlook surveys aspects and comparisons of forecasting performance victor zarnowitz and phillip braun comment allen sinai 2 a procedure for predicting recessions with leading indicators econometric issues and recent experience james h stock and mark w watson comment kenneth f wallis 3 estimating event probabilities from macroeconometric models using stochastic simulation ray c fair comment james d hamilton 4 a nine variable probabilistic macroeconomic forecasting model christopher a sims comment pierre perron 5 why does the paper bill spread predict real economic activity benjamin m friedman and kenneth n kuttner comment ben s bernanke 6 further evidence on business cycle duration dependence francis x diebold glenn d rudebusch and daniel e sichel comment bruce e hansen 7 dynamic index models for large cross sections danny quah and thomas j sargent comment john geweke 8 modelling non linearity over the business cycle clive w j granger timo terdsvirta and heather anderson comment andrew harvey contributors author index subject index

the footprint of evolutionary processes of learning and selection upon the statistical properties of industrial dynamics evolutionary theories of economic change identify the processes of idiosyncratic learning by individual firms and of market selection as the two main drivers of the dynamics of industries are such processes able to account for the statistical regularities which industrial structures and dynamics display in this work we address this question by means of a simple multi firm model formalizing the mechanisms of learning and selection as such despite its simplicity the model is able to robustly reproduce an ensemble of empirical stylized facts including ample heterogeneity in productivity distributions persistent market turbulence and fat tailed distribution of growth rates

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

unraveling the mne wage premium whereas ib has extensively studied mnes generic positive impact on host economies but rarely on employee wages economics research has only shown an overall mne wage premium we unravel this premium considering multiple levels of analysis and accounting for host country contextual contingencies to unveil mnes different positive or negative distributional effects using unique micro level data from over 40 000 employees in 13 countries we examine mnes distributional effects for employees gender experience and immigrant status the influence of host country property rights protection and labor regulation and interplays with region and industry effects mnes distributional effects show marked differences that largely depend on the host country context and that are positive for experienced and foreign born employees in developed countries but negative for females working in developing countries whereas in developed countries the gender wage gap is smaller in mnes than in domestic firms as hypothesized we find evidence of a larger wage gap in developing countries the analysis also reveals that the higher host countries level of property rights protection the lower the mne wage premium our study points at the need to reassess statements about the generic positive impact of mnes in host countries particularly in developing countries and discusses further research implications

country familiarity in the initial stage of foreign market selection focusing on the initial stage of foreign market selection i e narrowing a set of potential countries from which to make a final choice we theorize that manager s country familiarity influences both the decision making process and outcome we hypothesize that with increasing country familiarity a manager investment of cognitive effort process first increases and then decreases and b the likelihood of a country being included for further consideration outcome also increases and then decreases we further hypothesize that the effects of country familiarity are contingent on the managers international experience empirical evidence from verbal protocol analyses of managers provides strong support to our arguments these findings contribute to the emergent literature on the critical role of cognition in decision making about foreign markets manager cognition potentially influences sequential non sequential entry decision making possibly explaining some previously observed exceptions to internationalization process theory the contingent role of international experience further stresses that the influence of cognition in internationalization decision making is both important and complex involving at least innate cognitive processes idiosyncratic knowledge and international experience we discuss the theoretical implications along with practice implications of country familiarity and intuitive decision making in foreign market selection

diversification by entry into a new submarket using a dataset on the subsector and geographical segmentation of 208 pharmaceutical companies a bayesian panel probit is used to analyze the role of state dependency size and achieved diversification in affecting entry decision we properly account for unobservable heterogeneity in a context with nonstrictly exogenous regressors we find that achieved diversification measured by the number of submarkets already entered affects negatively the probability of entry beside some country specific exceptions size and the lagged dependent variable do not seem to be relevant

the impact of classes of innovators on technology financial fragility and economic growth in this article we study innovation processes and technological change in an agent based model by including a behavioral switching among heterogeneous innovative firms the model is able to replicate via simulations well known industrial dynamic and growth type stylized facts the main original element of the model is that firms are allowed to endogenously change among three different classes namely single innovators collaborative innovators and imitators moreover our analysis focuses on the impact of these three innovation categories on micro meso and macro aggregates we find that collaborative companies are those having the highest positive impact on the economic system furthermore we have paid particular attention to the role of credit market in promoting smart growth for this purpose we analyze the role of banks as sources of external funds for innovative entrepreneurs our results suggest a trade off between short term profit maximization and long term efficiency which prevents banks to foster investment in r d and technological progress the model is then used to study the effect that different innovation policies have on macroeconomic performance

scaling in economics a reader s guide this paper discusses examples of scaling laws in economics and finance it argues that these regularities in data are useful for disciplining theory formation estimation of the conditional predictive distribution and estimation of impulse response functions is a main goal of econometric work scaling type regularities give useful information on the underlying data generating process the ability of scaling laws to suggest lines of potentially fruitful research was illustrated by the suggestion of several speculative research projects in this paper most importantly the paper stresses the challenges that face empirical and theoretical researchers who wish to make use of scaling law type regularities to improve econometric identification of the underlying causal data generating mechanism copyright 1999 by oxford university press

business fluctuations in a behavioral switching model gridlock effects and credit crunch phenomena in financial networks abstract in this paper we characterize the evolution over time of a credit network in the most general terms as a system of interacting banks and firms operating in a three sector economy with goods credit and interbank market credit connections change over time via an evolving fitness measure depending from lenders supply of liquidity and borrowers demand of credit moreover an endogenous learning mechanism allows agents to switch between a loyal or a shopping around strategy according to their degree of satisfaction the crucial question we investigate is how financial bubbles and credit crunch phenomena emerge from the implemented mechanism

the positive role of global leaders in enhancing multicultural team innovation this study contributes to the empirical research on leadership of multicultural teams from the positive organizational scholarship perspective pos following the information decision making processes perspective on team cultural diversity we examined the positive effect of leaders global identity on multicultural team innovation we proposed that r d multicultural team leaders with high global identity foster team shared innovation goals and motivate team members to adopt communication inclusion behavior making sure that they all understand each other furthermore we propose that the effect of fostering team shared innovation goals on communication inclusion will be stronger for teams with perceived high rather than low cultural diversity and that team communication inclusion will positively affect team innovation participants were 574 r d multicultural team members their leaders and their leaders managers in 82 co located teams in a chinese branch of a large german global organization using sem analysis our findings supported our research model demonstrating that multicultural team leaders with high global identity leveraged cultural diversity to promote innovative goals which further enhanced team communication inclusion and its positive impact on team innovation we discuss the theoretical and practical implications to the pos perspective on cultural diversity

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

outside in global demand heterogeneity and dynamic capabilities of multinational enterprises we conceptualize the dynamic capabilities of multinational enterprises mnes as learning and adaptation capabilities that address the pressure of global integration and local responsiveness complementing the extant literature on dynamic capabilities which is focused on the supply side our study draws attention to the demand side influences especially in terms of global demand heterogeneity we propose that global demand heterogeneity provides pressures and opportunities for mnes to learn and adapt and thus positively relates to the development of mne dynamic capabilities however external sources per se may be insufficient firm specific advantages particularly human capital at the managerial and employee levels facilitate the internalization of external knowledge and pressure into the development of dynamic capabilities an empirical study of chinese multinational service firms strongly supports these arguments

the effects of linguistic distance and lingua franca proficiency on the stake taken by acquirers in cross border acquisitions we study the effects of linguistic distance and lingua franca proficiency on the equity stake taken by acquirers from 67 countries in 59 092 acquisition targets in 69 host countries we theorize and find that acquirers take lower equity stakes in foreign targets when linguistic distance and differences in lingua franca proficiency between them are high and take higher stakes when the combined lingua franca proficiency of the parties is high we also find that linguistic and cultural distance reduce the impact of the combined lingua franca proficiency of the parties on the level of equity taken which shows that the effective use of a lingua franca is affected by the native tongues and cultures of the parties our results clearly demonstrate that governance research and international business studies can benefit from incorporating language into their explanatory models

country size aggregate fluctuations and international risk sharing country size measured by either population or gross domestic product gdp is shown to be negatively related to the variances of aggregate output consumption and in vestment and positively related to the contemporaneous correlations of consumption and investment with output in a sample of fifty six countries these results however hold pri marily for the high income countries of the sample a subsample consisting of the twenty countries with the lowest per capita gdp exhibits a significant negative relationship only between investment volatility and country size these empirical regularities are shown to be consistent with the implications of international risk sharing among countries of asymmetric sizes in an international real business cycle model shocks in relatively large countries con stitute world wide risk to a greater extent than do similar shocks in smaller countries thus foreign shocks have a greater impact on small countries causing their aggregates to fluc tuate more and their consumption and investment to be less highly correlated with domestic output

the real time price elasticity of electricity the real time price elasticity of electricity contains important information on the demand response of consumers to the volatility of peak prices despite the importance empirical estimates of the real time elasticity are hardly available this paper provides a quantification of the real time relationship between total peak demand and spot market prices we find a low value for the real time price elasticity which may partly be explained from the fact that not all users observe the spot market price if we correct for this phenomenon we find the elasticity to be fairly low for consumers currently active in the spot market if this conclusion applies to all users this would imply a limited scope for government intervention in supply security issues

do firms share the same functional form of their growth rate distribution a statistical test abstract we propose a hypothesis testing procedure to investigate whether the same growth rate distribution is shared by all the firms in a balanced panel or more generally whether they share the same functional form for this distribution without necessarily sharing the same parameters we apply the test to panels of us and european union publicly quoted manufacturing firms both at the sectoral and at the subsectoral naics level we consider the following null hypotheses about the growth rate distribution of the individual firms i an unknown shape common to all firms with all the firms sharing also the same parameters or with the firm variance related to its firm size through a scaling relationship and ii several functional shapes described by the subbotin family of distributions our empirical results indicate that firms do not have a common shape of the growth rate distribution at the sectorial naics level whereas firms may typically be described by the same shape of the distribution at the subsectorial level even if the specific shape may not be the same for different subsectors

resource constraints as triggers of radical innovation longitudinal evidence from the manufacturing sector abstract despite the significant role of radical innovation as a driver of firm growth and performance the consequences of resource constraints for radical innovation outcomes remain unknown our paper addresses this gap we combine arguments from entrepreneurship theory and the theory of recombinative innovation to construct an overarching theoretical framework that argues why resource constraints can promote rather than impede radical innovation we then build hypotheses on two specific resource constraints knowledge and financial and test these by a lagged variable random effects tobit model with longitudinal data from an exceptionally large and detailed innovation survey controlling for absorptive capacity firm age and firm growth we find full support for the hypothesis that knowledge constraints spur radical innovation and partial support for the hypothesis that financial constraints spur radical innovation we discuss the theoretical significance of these findings and point to managerial implications and paths for future research

when national innovation system meet varieties of capitalism arguments on labour qualifications on the skill types and scientific knowledge needed for radical and incremental product innovations the literatures on varieties of capitalism voc and national innovation systems nis propose very similar arguments about how firms require different types of labour qualifications to pursue strategies of radical product innovation rpi incremental product innovation ipi and product imitation pi respectively despite their similar lines of reasoning however the voc scholars are concerned with the skill profiles of a firm s entire workforce whereas the nis proponents focus on the knowledge base of scientists given that both literatures have developed without explicitly taking the arguments of the neighbouring discipline into account it is thus unclear whether they explain the same or different phenomena furthermore both literatures propose firm level arguments but test them on the basis of macro rather than micro level indicators this paper therefore asks first does micro level evidence support the voc and nis arguments that particular types of employee skills and knowledge backgrounds of scientists are needed for different competitive strategies and if so do rpi ipi and pi firms need to employ scientists in combination with a workforce having the respective qualifications or is it sufficient if scientists or employees alone are adequately qualified quantitative analyses indicate that a particular mix of scientific knowledge combined with employee skills facilitate rpi ipi and pi strategies the article thus concludes that despite their similar reasoning the voc and the nis literatures indeed describe different phenomena without being aware of the synergies created whenever adequate employee and scientific qualifications are hired together

the effect of national culture on the choice of entry mode characteristics of national cultures have frequently been claimed to influence the selection of entry modes this article investigates this claim by developing a theoretical argument for why culture should influence the choice of entry two hypotheses are derived which relate culture to entry mode choice one focusing on the cultural distance between countries the other on attitudes towards uncertainty avoidance using a multinomial logit model and controlling for other effects the hypotheses are tested by analysing data on 228 entries into the united states market by acquisition wholly owned greenfield and joint venture empirical support for the effect of national culture on entry choice is found

institutional investors and stock market volatility statement of responsibility on t p reads xavier gabaix parameswaran gopikrishnan vasiliki plerou h eugene stanley

firm growth and laplace distribution the importance of large jumps abstract recent empirical studies have shown that firm growth rate distribution is not gaussian but closely follows a laplace distribution this robust feature of the growth rate distribution challenges existing models based on gibrat s model because it predicts a gaussian distribution first we analyze more than 100 000 japanese firms and empirically show that the laplace shape can be observed for the japanese firms then by using the theory of stochastic processes we theoretically show that the absence of jumps causes the discrepancy between gibrat s model and the laplace shape in particular based on the laplace shape and the law of proportionate effect we show that the firm growth process is a jump process in other words firm growth cannot be explained by the consequence of many small shocks but is determined by a few large jumps the widely observed laplace distribution reflects this jump property of firm growth dynamics

evidence on macroeconomic complementarities this paper provides empirical evidence on macroeconomic complementarities a restriction on the nature of interaction between individuals in a multiagent setting these models imply that activities across agents will be positively correlated that discrete decisions will be synchronized and that disturbances will be magnified and propagated the paper shows that these implications are consistent with aggregate observations as well as some microeconomic evidence further looking at certain historical episodes such as the national industrial recovery act as well as seasonal fluctuations provides additional support for models with macroeconomic complementarities copyright 1996 by mit press

when is gibrat s law a law the purpose of this article is to investigate if the industry context matters for whether gibrat s law is rejected or not using a dataset that consists of all limited firms in five digit nace industries in sweden during 1998 2004 the results reject gibrat s law on an aggregate level since small firms grow faster than large firms however gibrat s law is confirmed about as often as it is rejected when industry specific regressions are estimated it is also found that the industry context e g minimum efficient scale market concentration rate and number of young firms in the industry matters for whether gibrat s law is rejected or not

gibrat s law redux think profitability instead of growth we argue that firm profitability can be conveniently characterized by one and the same diffusion process for all firms akin to gibrat s seminal idea of a common stochastic description for the dynamics of firm growth here we show that the diffusion of profit rates applies across all surviving corporations irrespective of their size or industry which is not true for growth rates the diffusion process is empirically consistent with both the cross sectional distribution of profit rates and the individual time series of corporate profit rates leading to the notion of a statistical equilibrium this has stark and unexpected implications for our understanding of individual destinies since the model and data suggest that idiosyncratic efforts have no impact on the aggregate distributional outcome instead idiosyncratic efforts merely affect the individual persistence of abnormal profits from the system wide norm put differently corporations have to participate in the same game and can merely choose the speed at which they play it but they cannot bend the rules

do labor tax rebates facilitate firm growth an empirical study on french establishments in the manufacturing industry 2004 2011 in order to reduce labor costs and stimulate job creation many governments implement a large set of devices mainly consisting in reduced rates of social contributions the evaluation of their effect is still controversial unlike previous research our purpose is to appraise to what extent firm growth reacts to a decrease in the cost of labor per employee we tackle this question using an unbalanced panel of french establishments operating in the manufacturing industry between 2004 and 2011 we run estimations using a 2 step estimator making it possible to estimate the impact of explanatory variables on job creation at any point of the distribution of establishments employment growth rate while also controlling for individual fixed effects component our results show that the effect of the decrease in the labor cost generated by tax rebates mainly benefits fast growing and large establishments indeed the change in the number of employees in other establishments is significantly less affected even though the effect remains positive by the reduction in social contributions this is particularly the case for smaller establishments as well as for those whose growth is stagnant or negative these results lead us to reconsider the relevance of large scale policies aiming at reducing labor costs in the same way for all establishments regardless of their size or financial health

latent submarket dynamics and industry evolution lessons from the us laser industry in its first 35 years the us laser industry was characterized by steady growth in output and the number of producers whereas subsequently the number of producers steadily declined despite continued growth in the industry s output a model of industry evolution that features the creation destruction and fusing of independent submarkets is developed to explain these two eras data on all laser producers are used to test various implications of the model concerning entry exit and innovation the findings suggest that the emergence of an integrative submarket can fundamentally alter an industry s market structure and the character of innovation which is applied to explain historical developments in the evolution of various innovative industries

determinants of firms backward and forward looking r d search behavior this study develops and operationalizes a behavioral forward looking search model by incorporating prospect theory organizational risk literature and the logic of the behavioral theory of the firm with recognition of the bounded rationality of decision makers and the goal directed rule based nature of organizations this model suggests that a comparison between firms performance expectation and performance target translates the cognitive representation of the firms future into their subsequent actions by examining the research and development r d expenditures of u s manufacturing firms from 1980 to 2001 this study explores how performance aspirations expectations and slack affect decision making about firms r d search investments the findings show that both performance feedback and performance prospect are important determinants of firms search behavior after controlling for firm industry and time effects in addition backward and forward looking determinants have interactive effects on search behavior firms problem driven search activity further increases when firms feel unlikely to achieve the performance target for another year in contrast search intensity is reduced when firms expect to improve their performance from an underperforming situation to an outperforming situation the findings suggest that future research on performance feedback and experiential learning should also consider the effect of forward looking prospects on firm behavior

exploring the processes of firm growth evidence from a vector auto regression this article offers many new insights into the processes of firm growth by applying a vector autoregression model to longitudinal panel data on french manufacturing firms we observe the coevolution of key variables such as growth of employment sales gross operating surplus and labor productivity growth preliminary results suggest that employment growth is succeeded by the growth of sales which in turn is followed by growth of profits generally speaking however growth of profits is not followed by much employment growth or sales growth quantile regressions highlight some asymmetries between negative growth and fast growth firms

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

firm size and firm growth rate distributions the case of denmark there has been a recent renewed interest in the study of firm size distributions and firm growth rate distributions gibrat s law assumes firm growth rates are independent and identically distributed and that size is determined by a firstorder integrated process leaving the size distribution log normal this article analyzes these distribution patterns in an empirical context questioning the foundation of this model in a cross section analysis of four industries using danish data we show that the foundation and the outcome of gibrat s law are empirically far fetched in particular significant deviations from normality are found

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

reconciling quantile autoregressions of firm size and variance size scaling the aim of this paper is to understand what economic mechanisms may cause the law of proportionate effect to break down for fast growing and shrinking firms recent evidence has highlighted that the first order coefficients of quantile auto regression of firm size decline across quantiles our theoretical results show that negative variance size scaling is sufficient to yield a decline in quantile auto regression coefficients if firm log size is laplace distributed conditional on size one period ahead however it is sufficient only for declining auto regression coefficients for fast growing firms under asymmetric laplace conditional log size if skewness is decreasing with size in other words if the growth of large firms is less dispersed and more left skewed size is a disadvantage for the growth of fast growers but not necessarily an advantage for fast decliners thus size related determinants of negative growth skewness such as diseconomies of growth market power and managerial attention issues impact on how the lpe is violated using data on dutch manufacturing companies from the business register of enterprises observed between 1994 and 2004 our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small medium firms 20 199 employees mainly in the right most quantiles and for the same subsample we find that growth rates variance and skewness are decreasing with size the theoretical propositions of the paper are thus corroborated

how organizational resources affect strategic change and performance in turbulent environments theory and evidence this study examines how historical resource endowments and competencies affect strategic change and its outcomes amid environmental turbulence drawing from both behavioral and economics based literatures we develop four distinct perspectives regarding the likely effect of resources on strategic change these four perspectives offer alternative predictions about how and why resource endowments should affect the likelihood or magnitude of strategic change and how and why they should moderate the relation between strategic change and performance we examine the predictive power of these four alternative arguments using extensive longitudinal data from a single industry context characterized both by substantial resource heterogeneity and environmental turbulence results indicate that organizations possessing greater stocks of historically valuable resources were much less likely to engage in adaptive strategic change but also that this resource driven disinclination towards change tended to have a benign or even beneficial effect on performance we discuss the implications of our theory and findings for the strategic change literature and also for the literature on the resource based view of the firm

scaling the volatility of gdp growth rates abstract the distribution of shocks to gdp growth rates is found to be exponential rather than normal their standard deviation scales with gdp where 0 15 0 03 these macroeconomic results place restrictions on the microeconomic structure of interactions between agents

are differences in firm size transitory or permanent an erratum for this article has been published in journal of applied econometrics 18 2 2003 249 previous empirical work on corporate growth rates using cross section or short panel econometric techniques suggests that growth rates are random but that some degree of mean reversion exists this means that size differences between firms are transitory another more natural way to explore the long run distribution of firm sizes is to examine data on the growth of particular firms over long periods of time using a sample of 147 uk firms observed continually for more than 30 years our conclusions are that growth rates are highly variable over time and that differences in growth rates between firms do not persist for very long further firms show no tendency to converge to either a common size or to a pattern of stable size differences over time these results are compared and contrasted with standard approaches that suggest that firms reach and maintain stable positions in a skewed size distribution copyright 2002 john wiley sons ltd

on the existence of persistently outperforming firms this study analyses persistence in growth rates for a data set of manufacturing firms of all sizes previous quantile autoregressions of firm growth rates show that extreme growth events are likely to be negatively correlated over time thus questioning the existence of persistent outperformers by supplementing the quantile regression analyses with transition probability matrices our study shows that bouncing firms coexist with persistent outperformers this result is shown to be robust for all size classes as well as for the exclusion of firms who experienced acquisitions or spin offs

is there persistence in innovative activities abstract this paper examines firm innovative persistence using patent applications of 577 uk manufacturing firms non parametric techniques show the empirical distributions of patents are neither geometric nor poisson there exists a threshold effect represented by the first patent the probability to go from zero to one patent is uniformly much lower than from n to n 1 patents with n 1 transition probability matrices show little persistence in general but strong persistence among great innovators that account for a large proportion of patents requested innovative activities at least which are captured by patents are persistent there is heterogeneity across industrial and size classification

turnover activity in wealth portfolios we examine several subsets of the wealthiest individuals in the us and the uk that are compiled by forbes magazine and the sunday times since these are named subsets we can calculate the returns to wealth portfolios and calibrate a statistical equilibrium model of wealth distribution that accounts for the power law of wealth and the asymmetric laplace distribution of portfolio returns the model provides a relative measure of turnover activity that indicates how often changes in the composition of the wealthiest portfolios occur finally we investigate trends in equality mobility and turnover activity

the impact of climate risk on firm performance and financing choices an international comparison increasingly adverse climatic conditions have created greater systematic risk for companies throughout the global economy few studies have directly examined the consequences of climate related risk on financing choices by publicly listed firms across the globe we attempt to do so using the global climate risk index compiled and published by germanwatch kreft eckstein 2014 which captures at the country level the extent of losses from extreme weather events as expected we find the likelihood of loss from major storms flooding heat waves etc to be associated with lower and more volatile earnings and cash flows consistent with policies that attempt to moderate such effects we show that firms located in countries characterized by more severe weather are likelier to hold more cash so as to build financial slack and thereby organizational resilience to climatic threats those firms also tend to have less short term debt but more long term debt and to be less likely to distribute cash dividends in addition we find that certain industries are less vulnerable to extreme weather and so face less climate related risk our results are robust to using an instrumental variable approach a propensity score matched sample and path analysis and remain unchanged when we consider an alternative measure of climate risk finally our conclusions are invariant to the timing of financial crises that can affect different countries at different times

microeconomic origins of macroeconomic tail risks we document that even though the normal distribution provides a good approximation to gdp fluctuations it severely underpredicts macroeconomic tail risks that is the frequency of large economic downturns using a multi sector general equilibrium model we show that the interplay of idiosyncratic microeconomic shocks and sectoral heterogeneity results in systematic departures in the likelihood of large economic downturns relative to what is implied by the normal distribution notably we also show that such departures can happen while gdp is approximately normally distributed away from the tails highlighting the qualitatively different behavior of large economic downturns from small or moderate fluctuations we further demonstrate the special role that input output linkages play in generating tail comovements whereby large recessions involve not only significant gdp contractions but also large simultaneous declines across a wide range of sectors

when do international human capital enhancing practices benefit the bottom line an ability motivation and opportunity perspective we study the conditions under which firms can capitalize on their international human capital ihc using the ability motivation opportunity amo perspective we conceptualize ihc as ability collaborative climate as motivation and the firm s level of internationalization as opportunity we test three alternative amo models the additive model main effect the combinative model two way interactions and the multiplicative model a three way interaction using a cross industry sample of south korean firms we find support for the multiplicative model specifically the relationship between ihc enhancement practices and firm performance is significant and positive only when both collaborative climate and internationalization are high

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite