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Title:Understanding the contributions of reallocation to productivity growth: lessons from a comparative firm-level analysis PDF Logo
Authors:Brown, J. David
Earle, John S.
Issue Date:2008
Series/Report no.:IZA discussion papers 3683
Abstract:We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism. After reforms, they rise dramatically, and productivity contributions greatly exceed those observed in market economies. Early in transition, faster reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates much higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.
Subjects:Productivity
reallocation
industry dynamics
creative destruction
reform
transition
Georgia
Hungary
Lithuania
Romania
Russia
Ukraine
JEL:E32
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008092978
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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