This project is designed to analyze the supply, factor demand, and productivity responses of different manufacturing industries to changes that occurred in the economic environment between the early 1970's and the mid 1980's. The data used to perform the analysis will be the Longitudinal Establishment data set which includes information on the entry and exist of plants. An important feature that distinguishes this study from previous ones is that this analysis allows for systematic differences among firms, so that firms can react differently to the same change in the economic environment. Exit of a firm from an industry will be modeled as an optimal response of a firm to the evolution of its own, and the industry's environment. Industry response to economic change will be estimated by summing the responses of all existing firms and new entrants. By explicitly modelling the diversity of firm responses, it will be possible to produce a much richer analysis of industry dynamics. Of particular interest, will be predictions of the model's estimated parameters with respect to the response of industry investment, output, measured productivity, and job turnover rates, on the one hand, and to technical developments on the other. This research is important because there are anomalies that have occurred in all of these responses during the period under study that traditional models have not been able to explain.
