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The Contributions from Firm Entry, Exit and Continuation to Labour Productivity Growth in New Zealand

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Abstract

This paper evaluates the contributions from firm entry, exit and continuation to labour productivity growth in New Zealand over the period 1995 to 2003. Decomposition techniques developed by Griliches and Regev (1995) and by Foster, Haltiwanger and Krizan (1998) are employed. Results suggest significant heterogeneity across both industries and firms. Most entering firms’ initial level of labour productivity is below the industry average but grows rapidly thereafter. Continuing firms generally add to industry labour productivity growth. On average exiting firms experience stagnant or declining labour productivity in the years leading up to their death, and when they eventually die most have below average labour productivity compared to their industry. This pattern persists even at a highly disaggregated industry level and indicates that firm turnover has positively contributed to labour productivity growth in New Zealand.

Suggested Citation

  • David Law & Nathan McLellan, 2005. "The Contributions from Firm Entry, Exit and Continuation to Labour Productivity Growth in New Zealand," Treasury Working Paper Series 05/01, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:05/01
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp05-01.pdf
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    References listed on IDEAS

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    1. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
    2. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2004. "Business environment and firm entry : Evidence from international data," Policy Research Working Paper Series 3232, The World Bank.
    3. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
    4. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-846, September.
    5. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372, National Bureau of Economic Research, Inc.
    6. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
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    Cited by:

    1. Hong Shangqin & Philip McCann & Les Oxley, 2013. "Innovation in New Zealand: issues of firm size, local market size and economic geography," Chapters, in: Frank Giarratani & Geoffrey J.D. Hewings & Philip McCann (ed.), Handbook of Industry Studies and Economic Geography, chapter 19, pages 459-478, Edward Elgar Publishing.
    2. David Law & Bob Buckle & Dean Hyslop, 2006. "Toward a Model of Firm Productivity Dynamics," Treasury Working Paper Series 06/11, New Zealand Treasury.
    3. Paul Conway & Lisa Meehan & Guanyu Zheng, 2015. "Do New Zealand firms catch up to the domestic productivity frontier?," Working Papers 2015/03, New Zealand Productivity Commission.
    4. Borland, Jeff, 2005. "Impacts of Employment Regulation: Towards an Evaluation Framework," Occasional Papers 06/7, Ministry of Economic Development, New Zealand.
    5. Philip McCann, 2009. "Economic geography, globalisation and New Zealand's productivity paradox," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(3), pages 279-314.
    6. Nathan Chappell & Adam B. Jaffe & Trinh Le, 2018. "Worker Flows, Entry and Productivity in the New Zealand Construction Industry," NBER Working Papers 24376, National Bureau of Economic Research, Inc.
    7. David C. Maré & Dean R. Hyslop & Richard Fabling, 2017. "Firm productivity growth and skill," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(3), pages 302-326, September.
    8. Greene, Francis, 2012. "Should the focus of publicly provided small business assistance be on start-ups or growth businesses?," Occasional Papers 12/2, Ministry of Economic Development, New Zealand.
    9. Fabling, Richard & Grimes, Arthur & Sanderson , Lynda & Stevens, Philip, 2008. "Some Rise by Sin, and Some by Virtue Fall: Firm Dynamics, Market Structure and Performance," Occasional Papers 08/1, Ministry of Economic Development, New Zealand.
    10. Fabling, Richard, 2007. "Just How Innovative are New Zealand Firms? Quantifying & Relating Organisational and Marketing Innovation to Traditional Science & Technology Indicators," Occasional Papers 07/4, Ministry of Economic Development, New Zealand.
    11. Richard Fabling & Arthur Grimes & Levente Timar, 2014. "Natural Selection: Firm Performance Following the Canterbury Earthquakes," Working Papers 14_08, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    Firm Performance; Entry; Exit; Turnover; Mobility; Labour Productivity; New Zealand;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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