Working Paper: NBER ID: w9120
Authors: Lucia Foster; John Haltiwanger; CJ Krizan
Abstract: Understanding the nature and magnitude of resource reallocation, particularly as it relates to productivity growth, is important both because it affects how we model and interpret aggregate productivity dynamics, and also because market structure and institutions may affect the reallocation's magnitude and efficiency. Most evidence to date on the connection between reallocation and productivity dynamics for the U.S. and other countries comes from a single industry: manufacturing. Building upon a unique establishment-level data set of U.S. retail trade businesses, we provide some of the first evidence on the connection between reallocation and productivity dynamics in a non-manufacturing sector. Retail trade is a particularly appropriate subject for such a study since this large industry lies at the heart of many recent technological advances, such as E-commerce and advanced inventory controls. Our results show that virtually all of the productivity growth in the U.S. retail trade sector over the 1990s is accounted for by more productive entering establishments displacing much less productive exiting establishments. Interestingly, much of the between-establishment reallocation is a within, rather than between-firm phenomenon.
Keywords: productivity growth; reallocation; retail trade; establishment dynamics
JEL Codes: D24; J24; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entry of productive firms (L26) | overall productivity (O49) |
| exit of less productive firms (L19) | overall productivity (O49) |
| entry and exit of establishments (J63) | productivity growth (O49) |
| reallocation (J62) | productivity growth (O49) |