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Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy

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Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Aloi, Marta; Dixon, Huw D. Working Paper Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy CESifo Working Paper, No. 716 Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Aloi, Marta; Dixon, Huw D. (2002) : Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy, CESifo Working Paper, No. 716, Center for Economic Studies and ifo Institute (CESifo), Munich This Version is available at: http://hdl.handle.net/10419/75945 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu A joint Initiative of Ludwig-Maximilians-Universität and Ifo Institute for Economic Research Working Papers ENTRY DYNAMICS, CAPACITY UTILISATION AND PRODUCTIVITY IN A DYNAMIC OPEN ECONOMY* Marta Aloi Huw Dixon CESifo Working Paper No. 716 (5) May 2002 Category 5: Fiscal Policy, Macroeconomics and Growth CESifo Center for Economic Studies & Ifo Institute for Economic Research Poschingerstr. 5, 81679 Munich, Germany Phone: +49 (89) 9224-1410 - Fax: +49 (89) 9224-1409 e-mail: [email protected] ISSN 1617-9595 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com ¯ • from the CESifo website: www.CESifo.de * This paper has been presented at Bari, Bath, Birkbeck, Birmingham, Cardiff, Cergy- Pontoise (Paris), Dublin, Durham, EUI (Florence), Galway, Lisbon (UCL), Milan (Statale), Munich (CES), Nottingham, Swansea and York. We would like to thank Giuseppe Bertola, John Driffill, Saqib Jaffrey, Philip Lane, Patric Minford, Kevin O’Rourke, Mark Roberts and Dennis Snower for their valuable comments. The paper was written whilst Huw Dixon was an ESRC Research Fellow. Faults are ours. CESifo Working Paper No. 716 ENTRY DYNAMICS, CAPACITY UTILISATION AND PRODUCTIVITY IN A DYNAMIC OPEN ECONOMY Abstract This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run transitory productivity dynamic introduced when there is imperfect competition due to changes in capacity utilization. We are able to analyze this in different contexts, including demand and technology shocks, both anticipated and unanticipated. JEL Classification: E2, E6, L1. Keywords: entry, capacity utilisation, adjustment costs, Ramsey. 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