IDEAS home Printed from https://ideas.repec.org/p/rif/wpaper/11.html
   My bibliography  Save this paper

Allocation and industry productivity: Accounting for firm turnover

Author

Listed:
  • Maliranta, Mika
  • Määttänen, Niku

Abstract

Recent macroeconomic literature has stressed the importance of resource allocation between firms for aggregate productivity. An important issue, therefore, is how to measure allocative efficiency. We compare popular indicators of allocative efficiency, paying special attention to firm turnover. We first show how entering and exiting firms contribute to aggregate productivity and to the Olley-Pakes (OP) covariance component, which is currently the most popular measure of allocative efficiency. Our data cover essentially all firms and plants in the Finnish business sector. We then build a model of firm dynamics with endogenous turnover that is consistent with the main patterns of our empirical results and use it to test how well alternative indicators capture different allocation distortions. Our results demonstrate how and why commonly used indicators fail to capture certain distortions because of endogenous changes in firm turnover.

Suggested Citation

  • Maliranta, Mika & Määttänen, Niku, 2013. "Allocation and industry productivity: Accounting for firm turnover," ETLA Working Papers 11, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:11
    as

    Download full text from publisher

    File URL: http://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-11.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
    2. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
    3. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2009. "Measuring and Analyzing Cross-country Differences in Firm Dynamics," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 15-76, National Bureau of Economic Research, Inc.
    4. Haltiwanger, John & Jarmin, Ron & Schank, Thorsten, 2003. "Productivity, investment in ICT and market experimentation: micro evidence from Germany und the US," Discussion Papers 19, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    5. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    6. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
    7. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    8. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
    9. 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.
    10. Diego Comin & Bart Hobijn, 2004. "Neoclassical Growth and the Adoption of Technologies," NBER Working Papers 10733, National Bureau of Economic Research, Inc.
    11. 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.
    12. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    13. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    14. Bockerman, Petri & Maliranta, Mika, 2007. "The micro-level dynamics of regional productivity growth: The source of divergence in Finland," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 165-182, March.
    15. Hall, Bronwyn H. & Hayashi, Fumio, 1989. "Research and Development as an Investment," Department of Economics, Working Paper Series qt8br8d266, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    16. Reinhilde Veugelers (ed.), 2009. "The Evaluation of the Finnish National Innovation System - Full Report," Books, The Research Institute of the Finnish Economy, number 495.
    17. S.K. Bhutani, 2009. "China and India," India Quarterly: A Journal of International Affairs, , vol. 65(4), pages 383-391, October.
    18. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    19. Gianmarco I.P. Ottaviano & Aki Kangasharju & Mika Maliranta, 2009. "Local Innovative Activity and Regional Productivity: Implications for the Finnish National Innovation Policy," Chapters, in: Reinhilde Veugelers (ed.), The Evaluation of the Finnish National Innovation System, pages 203-238, The Research Institute of the Finnish Economy.
    20. Jalava, Jukka & Aulin-Ahmavaara, Pirkko & Alanen, Aku, 2007. "Intangible Capital in the Finnish Business Sector 1975-2005," Discussion Papers 1103, The Research Institute of the Finnish Economy.
    21. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    22. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adam Jaffe & Nathan Chappell, 2018. "Worker flows, entry, and productivity in New Zealand’s construction industry," Working Papers 18_02, Motu Economic and Public Policy Research.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    2. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    3. Giammario Impullitti & Omar Licandro, 2018. "Trade, Firm Selection and Innovation: The Competition Channel," Economic Journal, Royal Economic Society, vol. 128(608), pages 189-229, February.
    4. Kaiji Chen & Alfonso Irarrazabal, 2015. "The Role of Allocative Efficiency in a Decade of Recovery," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 523-550, July.
    5. Kaiji Chen & Alfonso Irarrazabal, 2015. "The Role of Allocative Efficiency in a Decade of Recovery," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 523-550, July.
    6. Eslava, Marcela & Haltiwanger, John C. & Kugler, Adriana & Kugler, Maurice, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," IZA Discussion Papers 4256, Institute of Labor Economics (IZA).
    7. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    8. Daron Acemoglu & Ufuk Akcigit & Harun Alp & Nicholas Bloom & William Kerr, 2018. "Innovation, Reallocation, and Growth," American Economic Review, American Economic Association, vol. 108(11), pages 3450-3491, November.
    9. J. David Brown & Gustavo A. Crespi & Leonardo Iacovone & Luca Marcolin, 2018. "Decomposing firm-level productivity growth and assessing its determinants: evidence from the Americas," The Journal of Technology Transfer, Springer, vol. 43(6), pages 1571-1606, December.
    10. Peter J. Klenow & Huiyu Li, 2020. "Innovative Growth Accounting," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, pages 245-295, National Bureau of Economic Research, Inc.
    11. Pavel Ševčík, 2017. "Do Multi-Plant Firms Reduce Misallocation? Evidence from Canadian Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 275-308, June.
    12. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2010. "Recent Advances in the Empirics of Organizational Economics," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 105-137, September.
    13. Henk Kox & George van Leeuwen, 2012. "Dynamic market selection in EU business services," CPB Discussion Paper 210, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    15. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    16. Duranton,Gilles & Ghani,Syed Ejaz & Grover,Arti Goswami & Kerr,William Robert & Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "The misallocation of land and other factors of production in India," Policy Research Working Paper Series 7221, The World Bank.
    17. De loecker, Jan & Asker, John & Collard-Wexler, Allan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
    18. Xiaobing, Huang & Xiaolian, Liu, 2015. "Exporting firm dynamics and productivity growth: Evidence from China," Economics Discussion Papers 2015-64, Kiel Institute for the World Economy (IfW Kiel).
    19. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    20. Hyytinen, Ari & Maliranta, Mika, 2013. "Firm lifecycles and evolution of industry productivity," Research Policy, Elsevier, vol. 42(5), pages 1080-1098.

    More about this item

    Keywords

    productivity; firm dynamics; reallocation;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rif:wpaper:11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kaija Hyvönen-Rajecki (email available below). General contact details of provider: https://edirc.repec.org/data/etlaafi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.