Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?
Open accessAbstract
We investigate the nature of selection and productivity growth in industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. Because physical productivity is inversely correlated with price while revenue productivity is positively correlated with price, previous work linking (revenue-based) productivity to survival confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. Further, we find that young producers charge lower prices than incumbents. Thus the literature understates new producers' productivity advantages and entry's contribution to aggregate productivity growth. (JEL D24, L11, L25)
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Production-function residuals capture not only technical efficiency differences but also market power, factor market distortions, or product mix changes.
“These residuals capture not only differences in technical efficiency across firms but also differences in market power, factor market distortions, or changes in the product mix, as suggested by the recent work by Lucia Foster, John Haltiwanger, and Chad Syverson (2008), Chang-Tai Hsieh and Peter Klenow (2009), and Bernard, Stephen Redding, and Peter Schott (2010), respectively.”
From Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms (2011) · cites this paper as Lucia Foster, John Haltiwanger, and Chad Syverson (2008)
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- Authors
- Foster, L., Haltiwanger, J., & Syverson, C.
- Affiliations
- United States Census Bureau (US)
- National Bureau of Economic Research (US)
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2008-03-01
- Volume
- 98
- Issue
- 1
- Pages
- 394-425
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W3122003031
- Cited by
- 1,861
- References
- 0
- Citations by year
- 2026: 80 · 2025: 94 · 2024: 99 · 2023: 126 · 2022: 82 · 2021: 127 · 2020: 103 · 2019: 115 · 2018: 118 · 2017: 111 · 2016: 115 · 2015: 112 · 2014: 112 · 2013: 109 · 2012: 86
- FWCI
- 195.73
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- American Economic Review (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Firm Innovation and Growth
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Growth and Productivity
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Keywords
- firm entry and exit, reallocation, business survival, productivity growth, technical efficiency, revenue productivity, physical productivity, new entrants, market power
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