Path Dependent Patterns of Persistence in Productivity Growth

This paper contributes to the analysis of the persistence of firm productivity, here measured by the total factor productivity (TFP), and highlights its path dependent characteristics. The study contributes to the literature on persistence in productivity along four main lines. First, it develops a conceptual framework that links the persistence in productivity performance to persistence at the firm level in innovative activities, which include the adoption and imitation of innovations introduced by third parties. Second, it shows how the internal characteristics of companies, including the propensity of managers to leverage dynamic capabilities, can shape the dynamics of the process. Third, it confirms that external factors, such as the access to local pools of knowledge and the dynamics of economic activity, have relevant effects on persistence and shape its evolution along its path. Fourth, the use of Multiple Transition Probability Matrices (MTPMs) and the subsequent econometric analysis provides substantial evidence on the relevance of the crucial distinction, within non-ergodic dynamics, between past dependent processes, characterized by full hysteretic irrever sibility, and path dependent processes in which events that take place along the process may affect its direction and pace.