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What do we know about changing economic activity of firms?

Author

Listed:
  • Pandey, Radhika

    (National Institute of Public Finance and Policy)

  • Sapre. Amey

    (National Institute of Public Finance and Policy)

  • Sinha, Pramod

    (National Institute of Public Finance and Policy)

Abstract

Identifiation of primary economic activity of firms is a prerequisite for compiling several macro aggregates. In this paper we take a statistical approach to understand the extent of changes in primary economic activity of firms over time and across different industries. We use the history of economic activity of over 46000 firms spread over 25 years from CMIE Prowess to identify the number of times firms change the nature of their business. Using the count of changes, we estimate Poisson and Negative Binomial regression models to gain predictability over changing economic activity across industry groups. We show that a Poisson model accurately characterizes the distribution of count of changes across industries and that firms with a long history are more likely to have changed their primary economic activity over the years. Findings show that classification can be a crucial problem in a large dataset like the MCA21 and can even lead to distortions in value addition estimates at the industry level.

Suggested Citation

  • Pandey, Radhika & Sapre. Amey & Sinha, Pramod, 2019. "What do we know about changing economic activity of firms?," Working Papers 19/249, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:19/249
    Note: Working Paper 249, 2019
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    References listed on IDEAS

    as
    1. David Hyland & J David Diltz, 2002. "Why Firms Diversify: An Empirical Examination," Financial Management, Financial Management Association, vol. 31(1), Spring.
    2. Sapre, Amey & Sinha, Pramod, 2016. "Some areas of concern about Indian Manufacturing Sector GDP estimation," Working Papers 16/172, National Institute of Public Finance and Policy.
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    Cited by:

    1. Nagaraj, R. & Sapre, Amey & Sengupta, Rajeswari, 2020. "Four Years After the Base-Year Revision: Taking Stock of the Debate Surrounding India’s National Accounts Estimates," India Policy Forum, National Council of Applied Economic Research, vol. 16(1), pages 55-107.
    2. Pramod Sinha & Seshanwita Das, 2021. "Pattern and Trends of Financing in the Indian Manufacturing Sector," Studies in Microeconomics, , vol. 9(1), pages 105-127, June.

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    More about this item

    Keywords

    Economic Activity ; Manufacturing ; India ; Poisson Distribution;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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