Working Paper: NBER ID: w23875
Authors: Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
Abstract: We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.
Keywords: Productivity Growth; Firm Age; Startup Activity; Economic Dynamics
JEL Codes: E01; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm age (L10) | productivity growth (O49) |
| higher entry rates (J68) | productivity growth (O49) |
| declining startup rates (L26) | productivity growth (O49) |
| selection and reallocation (D61) | higher productivity growth in younger firms (L26) |
| startup activity (L26) | productivity growth (O49) |