Modelling the Growth of Corporate Productivity

Abstract

In this chapter we present our model of corporate growth which is based upon strong theoretical reasoning but is also designed to be applicable empirically and in particular to be of use in explaining the different growth performance of various corporations. Here we provide the underlying basis of the model in an intuitive manner without the use of technical and particularly mathematical terms. A technical specification of the model is provided in Appendix 3.1 (p.39), while a discussion of how the model can be calibrated to available data for specific corporations is provided in Appendix 3.2 (p.46). The basic objective of the model is to explain why corporations tend to exhibit persistent growth of labour productivity over time and why growth rates differ between corporations competing in similar markets. There are two key elements to the model which are first discussed in the chapter: first, the nature of the firm and then, secondly, technological progress and learning processes. In the final part of the chapter we bring these concepts together to provide a full discussion of the model of the growth of productivity within modern corporations.