Firm Heterogeneity, Market Power and Macroeconomic Fragility

  title={Firm Heterogeneity, Market Power and Macroeconomic Fragility},
  author={Alessandro Ferrari and Francisco Queir{\'o}s},
  journal={Emerging Markets Economics: Firm Behavior \& Microeconomic Issues eJournal},
We investigate how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions.We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states.We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well… 


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