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Renewal of Companies: Industry Switching as a Form of Structural Change

Author

Listed:
  • Kuosmanen, Natalia
  • Kuosmanen, Timo
  • Ali-Yrkkö, Jyrki
  • Pajarinen, Mika

Abstract

The contributions of entry and exit of firms to aggregate productivity growth are well-established in the literature. However, the impact of industry switching of firms on productivity remains overlooked. The purpose of this report is to shed new light on the role of industry switching as a form of structural change. The results show that industry switching is very common and occurs in all industries in Finland, especially during the times of recession. Industry switching has had both positive and negative contributions to aggregate productivity in different periods. Intra-industry switching had mainly negative impact on productivity growth suggesting that switching was taken as a strategy to survive. On the other hand, inter-industry switching had mainly positive impact on productivity growth, suggesting that switching was associated with new products and technologies. The study also looked at the structural developments of industries relevant for combating climate change. As emission reduction targets require companies to renew their product and service offerings, climate policy can help guide companies to switch industries. However, in the industries examined in the study, restructuring has so far taken place mainly through entry and exit.

Suggested Citation

  • Kuosmanen, Natalia & Kuosmanen, Timo & Ali-Yrkkö, Jyrki & Pajarinen, Mika, 2022. "Renewal of Companies: Industry Switching as a Form of Structural Change," ETLA Reports 126, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:report:126
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Sašo Polanec, 2015. "Dynamic Olley-Pakes productivity decomposition with entry and exit," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 362-375, June.
    2. Mika Maliranta & Niku Määttänen, 2015. "An Augmented Static Olley–Pakes Productivity Decomposition with Entry and Exit: Measurement and Interpretation," Economica, London School of Economics and Political Science, vol. 82, pages 1372-1416, December.
    3. Kuosmanen, Timo & Kuosmanen, Natalia, 2021. "Structural change decomposition of productivity without share weights," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 120-127.
    4. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    5. Maliranta, Mika & Valmari, Nelli, 2017. "The Renewal of Production at the Product Line Level in Finnish Manufacturing," ETLA Reports 72, The Research Institute of the Finnish Economy.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kuosmanen, Natalia & Valmari, Nelli, 2023. "Renewal of Companies Through Product Switching," ETLA Working Papers 104, The Research Institute of the Finnish Economy.
    2. Kuosmanen, Natalia & Maczulskij, Terhi, 2022. "The Role of Firm Dynamics in the Green Transition: Carbon Productivity Decomposition in Finnish Manufacturing," ETLA Working Papers 99, The Research Institute of the Finnish Economy.

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    More about this item

    Keywords

    Industrial structure; Industry switching; Labor productivity; Productivity decompositions;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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