Localized competition and the aggregation of plant-level increasing returns: Blast furnaces, 1929-1935
A recent empirical literature has shaken economists' confidence in the value of aggregate (industry-level) data to illuminate production relationships, but the statistical finding "you cannot aggregate" however well documented, is not an economic explanation. Plant-level relationships...
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Published in | The Journal of political economy Vol. 104; no. 2; p. 241 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Chicago
University of Chicago, acting through its Press
01.04.1996
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Subjects | |
Online Access | Get full text |
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Summary: | A recent empirical literature has shaken economists' confidence in the value of aggregate (industry-level) data to illuminate production relationships, but the statistical finding "you cannot aggregate" however well documented, is not an economic explanation. Plant-level relationships do aggregate in Depression-era blast furnace operations despite the presence of very substantial interplant heterogeneity, the most common cause of nonaggregability. The economic explanation of this lies in poor short-run substitutability of one plant's output for another's. Substitutability determines the importance of composition effects in understanding aggregate time series, constrains the potential cleansing effects of recessions, and therefore influences industry evolution quite broadly. |
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ISSN: | 0022-3808 1537-534X |
DOI: | 10.1086/262024 |