Firm%20dynamics,%20productivity%20and%20job%20creation:%20Some%20evidence

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Firm dynamics, productivity and job creation
Some evidence
OECD Conference on Understanding
Entrepreneurship Issues and Numbers

• Stefano Scarpetta
• Lead Economist
• The World Bank
• Paris
• 26 27 October 2005

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Plan of the presentation

• Distributed micro analysis to assess firm
  dynamics and its role for productivity and job
  creation
• The magnitude and characteristics of firm
  demographics
• Firm size at entry
• Firm survival
• Post entry growth
• Resource reallocation, firm demographics and
  productivity
• Static efficiency
• Dynamic efficiency
• Concluding remarks can we use firm-level data
  to assess entrepreneurship and the policy
  challenges

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1. Distributed micro analysis

• The challenge of cross-country analysis
• Sectoral data
• e.g. OECD-STAN Unido
• aggregate sectors obscure causal mechanism
• Meta-analysis of results from micro studies
• A challenge to control for data, method, and
  context
• Little within-country variation in policy (e.g.
  before and after)
• Cross-country longitudinal micro dataset
• Generally not possible (disclosure)
• EUROSTAT attempting to build EU panel, but from
  existing databases, DG MARTK

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1. Distributed micro analysis

• OECD sample
• Demographics (entry/exit) for 10 countries
• Productivity decompositions for 7 countries
• Survival analysis 7 countries
• World Bank sample
• Same variables, 14 Central and Eastern Europe,
  Latin America and South East Asia
• Data are disaggregated by
• industry (2-3 digit)
• size classes 1-9 10-19 20-49 50-99 100-249
  250-499 500 (for OECD sample the groups between
  1 and 20 and the groups between 100 and 500 are
  combined)
• Time (late 1980s late 1990s)

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1. Distributed micro analysis
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1. Distributed micro analysis

• Unit of measurement Firm, following (Eurostat,
  1998) an organizational unit producing goods or
  services which benefits from a certain degree of
  autonomy in decision-making, especially for the
  allocation of its current resources.
• Data extracted following same protocols by
  experts in each countries, Mika Maliranta, Satu
  Nurmi, Jonathan Haskel, Richard Duhaitois, Pedro
  Portugal, Thorsten Schank, Fabiano Schivardi,
  Ralf Marten, Ylva Heden, Ellen Hogenboom, Mihail
  Hazans, Jaan Masso, John Earle, Milan Vodopivec,
  Maurice Kugler, Mark Roberts, Andrea Repetto,
  Gabriel Sanchez, David Kaplan...

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2. The magnitude and characteristics of firm
demographics
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2. The magnitude and characteristics of firm
demographics

• Entry and exit rates tend to be similar across
  countries

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2. The magnitude and characteristics of firm
demographics

• but entering firms are small

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2. The magnitude and characteristics of firm
demographics

• Post-entry employment growth varies more across
  countries
• Average firm size growth relative to entry, by
  age

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3. Assessing the role of firm dynamics on
productivity

• The cross-sectional efficiency of resource
  allocation
• The dynamic efficiency the role of entry and
  exit
• The heterogeneity of firms and the effects on
  productivity

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The cross-sectional efficiency of the allocation
of activity

• Olley and Pakes (1996) note that in the cross
  section, the level of productivity for a sector
  at a point in time can be decomposed as follows
• where N of firms in a sector D is the
  operator for the cross sectoral deviation from
  sectoral average
• The first term is the unweighted average of
  firm-level productivity, the second term reflects
  the cross-sectional efficiency of the allocation
  of resources. The cross term captures allocative
  efficiency since it reflects the extent to which
  firms with greater efficiency have a greater
  market share.

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The cross-sectional efficiency of the allocation
of activity
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The dynamic efficiency

• Foster, Haltiwanger and Krizan (FHK , 2001) in
  this decomposition, each term is weighted by the
  average (over 3/5 years) market shares as
  follows
• The within-firm effect is within-firm
  productivity growth weighted by initial output
  shares.
• The between-firm effect captures the gains in
  aggregate productivity coming from the expanding
  market of high productivity firms, or from
  low-productivity firms shrinking shares weighted
  by initial shares.
• The cross effect reflects gains in productivity
  from high-productivity growth firms expanding
  shares or from low-productivity growth firms
  shrinking shares.
• The entry effect is the sum of the differences
  between each entering firms productivity and
  initial productivity in the industry, weighted by
  its market share.
• The exit effect is the sum of the differences
  between each exiting firms productivity and
  initial productivity in the industry, weighted by
  its market share.

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The dynamic efficiency the role of entry and
exit

• The contribution of entry and exit of firms to
  total labor productivity growth

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The dynamic efficiency the role of entry and
exit

• Stronger contribution of entry to productivity
  growth in medium high tech industries

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The dynamic efficiency which firms increase
employment?

• The heterogeneity of firms labor productivity
  and growth

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Concluding remarks

• Sizeable process of creative destruction in ALL
  countries
• Differences in the nature of the process of
  creative destruction Market experimentation
• Strong contribution of resource reallocation on
  productivity from both static and dynamic
  perspectives
• Differences in the role of creative destruction
  on productivity growth across countries and
  technology groups
• Differences in degree of firm heterogeneity
  across countries
• More barriers to growth than barriers to entry
• Factors that may promote experimentation
• More market-based financial system
• Lower administrative costs of start up
• Lower costs of adjusting the workforce to
  accommodate changes in demand