Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?

By L. Foster, John C. Haltiwanger, Chad Syverson. Social Science Research Network, 2008

2,248 citations recorded by the source corpus.

There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b4115159f7a7cb1fe31cc58ad5f7b562a351db2e

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Citations in the corpus

Importing, Exporting, and Innovation in Developing Countries (2009, neutral): “Recent studies like Foster et al. (2008) and Katayama et al. (2009) highlight this inconsistency in productivity measures(3).”
Learning from Trade Through Innovation (2010, neutral): “Foster et al. (2006) provide some evidence in favor of this by showing that firm-specific demand variations, rather than technical effi ciency, are the essential determinants of firm survival, and they positively affect firm productivity.”
The Elusive Pro-Competitive Effects of Trade (2018, background): “Absent this assumption, the aggregate welfare gains from trade liberalization could still be computed by summing up equivalent variations across individuals, or more generally, by specifying a social welfare function; Galle et al. (2014) and Antras et al.”
Heterogeneous Markups, Growth, and Endogenous Misallocation (2020, background): “Foster et al. (2001, p. 309) for example find that about “15% of job creation is accounted for by entry and exit”. In terms of productivity growth, the calibrated model implies that the share of aggregate growth accounted for by firms’ own-innovation is given by about 70%. This is similar to Garcia-”
Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China? (2015, background): “Most papers in this literature analyze the unconditional effect of trade shocks on various dimensions of firm performance such as output and survival (Bernard, Jensen and Schott (2006)), cost of debt (Valta (2012)), leverage (Xu (2012)), capital expenditure (Fresard and Valta (2016)), employment and”
Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America (2018, neutral): “17 These are the data used by Foster, Haltiwanger, and Syverson (2008) to study physical productivity and revenue productivity. used by the electricity generation sector.)”
India's Mysterious Manufacturing Miracle (2011, background): “10 This is dispersion in “revenue productivity”, or TFPR, in the terminology of Foster et al. (2008). Given the lack of plant-specific output deflators, revenue productivity is proportional to the value of the average products of labor and capital at a plant, not the plant’s underlying technical eff”
The Impact of Innovation on the Firm Performance and Corporate Social Responsibility of Vietnamese Manufacturing Firms (2019, background): “[30] suggest that firm-specific demand variations, rather than technical efficiency, are the dominant factor in determining firm survival and positively influence measured productivity.”
Productive Cities: Sorting, Selection, and Agglomeration (2014, background): “Using the probability distribution function associated with (32) into (30) and (31) and solving for the integrals yields:”
Measuring the Bias of Technological Change (2014, background): “…for Monitoring the Indian Economy (De Loecker et al. 2016), and the Longitudinal Business Database at the US Census Bureau, which contain separate information on prices and quantities, at least for a subset of industries (Roberts and Supina 1996; Foster, Haltiwanger, and Syverson 2008, 2016).”
Does Management Matter? Evidence from India (2011, neutral): “Contact the author or original publisher for any necessary permissions. eScholarship is not the copyright owner for deposited works.”
Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms (2008, neutral): “21 Our econometric results are, instead, largely consistent with those obtained by Helpman et al. (2003) and Bernard et al.”
Land Reform and Productivity: A Quantitative Analysis with Micro Data (2019, neutral): “Ghatak and Roy (2007) show that land ceilings had a significant negative effect on agricultural productivity in India.”
Firms and Labor Market Inequality: Evidence and Some Theory (2018, neutral): “Here PjTj represents total factor productivity (TFPj), which, in the terminology of Foster et al. (2008), is also referred to as revenue productivity because it is the product of physical productivity Tj and product price Pj.”