An Application

Abstract

This chapter provides an empirical illustration to the theory presented in chapter 3. We will work with a balanced panel of 18 Dutch firms, classified as belonging to the rubber-processing industry, over the period 1978–1992. The basic micro-data come from the yearly production surveys. The firms vary considerably in size, the ratio of the largest to the smallest (measured in terms of the value of output) on average being 70 to 1. Averaged over the whole time period they account for over 80% of the industry’s employment as well as over 80% of its value added. One can, of course, doubt whether all these firms, within every year, indeed have access to the same technology. We will not pursue this, as we are using this dataset for the purpose of illustration only. For the same reason we refrain from questions concerning the accuracy of the data.