Working Paper: NBER ID: w27184
Authors: Marcela Eslava; John C. Haltiwanger
Abstract: We develop a framework that uses price and quantity information on both establishments' outputs and inputs to assess the roles, on establishment dynamics and welfare, of technical efficiency, input prices, demand/quality, idiosyncratic markups, and residual wedges. Our strategy nests previous approaches limited by data availability. In our application, demand/quality is found to dominate the cross sectional variability of sales and sales growth, while quality-adjusted input prices and residual wedges play dampening roles, especially at birth. Markups play only a modest role for cross-sectional variability of sales and sales growth but are important in explaining welfare losses from revenue productivity dispersion.
Keywords: establishment dynamics; welfare; productivity; demand quality; markups; residual wedges
JEL Codes: E24; L24; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Demand quality (L15) | Sales (L81) |
| Demand quality (L15) | Sales growth (O49) |
| Quality-adjusted input prices (C43) | Sales growth (O49) |
| Residual wedges (D33) | Sales growth (O49) |
| Markups (Y10) | Sales variability (C29) |
| Markups (Y10) | Welfare losses (D69) |
| Residual wedges (D33) | Plant fundamentals (Q16) |
| Plant fundamentals (Q16) | Growth barriers (O11) |
| Dispersion in demand shifters (D39) | Heterogeneity in sales (F12) |
| Dispersion in demand shifters (D39) | Heterogeneity in sales growth (L25) |