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Firm productivity dynamism in the euro area

Author

Listed:
  • Barrela, Rodrigo
  • Botelho, Vasco
  • Lopez-Garcia, Paloma

Abstract

This box shows that movements of firms along the productivity distribution over time have played a key role in explaining productivity developments in the euro area. The movement of firms along the productivity distribution is mainly driven by the capacity of firms to react to shocks and by incentives to innovate. This applies to both low-productivity firms that want to survive in the market and high-productivity firms that face the risk of falling behind the times. Interestingly, firm productivity has become less dynamic over time, which may reflect an increase in the average age of frontier firms and declining entry rates in the wake of higher market concentration. This decline in firm dynamism highlights the important role of structural policies in incentivising technological innovation and fostering the market entry of highly productive firms and the exit of less-productive firms. JEL Classification: D22, D24, E24, D61

Suggested Citation

  • Barrela, Rodrigo & Botelho, Vasco & Lopez-Garcia, Paloma, 2022. "Firm productivity dynamism in the euro area," Economic Bulletin Boxes, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbbox:2022:0001:3
    Note: 2648086
    as

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    File URL: https://www.ecb.europa.eu//press/economic-bulletin/focus/2022/html/ecb.ebbox202201_03~1bbbd0b0a9.en.html
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    More about this item

    Keywords

    Churning; Firm dynamism; Productivity growth;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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