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Exit and Entry Dynamics of UK Firms in the Wake of the Global Financial Crisis

Author

Listed:
  • Gerth, Florian
  • Briggs, Chad M.
  • Diaz, John Francis T.

Abstract

This paper investigates the dynamics of entering and exiting firms in determining the long-lasting drop in aggregate Total Factor Productivity (TFP) following the Great Recession in the UK. We decompose the growth rate of UK industry productivity over the 2006-2014 period into four components; the within, the between, the entry, and the exit effect employing the Diewert and Fox (2010) method using the FAME micro-level dataset. The main factor driving the aggregate TFP decline is the within effect, which is the productivity decline within surviving firms. However, the entry and exit effects also significantly contribute to the long-lasting drop in aggregate TFP. First, exiting firms tend to have higher than average TFP. Second, newly entering firms tend to have lower than average TFP. And third, newly entering firms fail to increase their TFP levels over time, thereby depressing the within effect.

Suggested Citation

  • Gerth, Florian & Briggs, Chad M. & Diaz, John Francis T., 2024. "Exit and Entry Dynamics of UK Firms in the Wake of the Global Financial Crisis," MPRA Paper 123325, University Library of Munich, Germany, revised Jan 2025.
    • Handle: RePEc:pra:mprapa:123325
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    File URL: https://mpra.ub.uni-muenchen.de/123325/1/MPRA_paper_123325.pdf
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    More about this item

    Keywords

    Great Recession; Firm Dynamics; United Kingdom; Total Factor Productivity; Credit Rationing;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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