Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189904 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
School of Economics Discussion Papers No. 1714
Publisher: 
University of Kent, School of Economics, Canterbury
Abstract: 
This paper argues that the fall and persistently low level of UK Total Factor Productivity (TFP) following the Great Recession was caused by the turnover (entry and exit) of firms, rather than by resource misallocation between firms within industries. I conduct a misallocation exercise employing the Hsieh and Klenow (2009) and the Olley and Pakes (1996) methods using the FAME microlevel dataset that contains more than 9 million firms within the UK over the 2006 - 2014 period. The main findings are that, first, service sector TFP drops far more than manufacturing TFP and therefore drives the fall and long-lasting depression in aggregate productivity. Second, within-industry misallocation cannot account for the drop in TFP. Third, the entry and exit of firms both contribute to the decline in aggregate TFP while the entry of firms has a larger negative effect on TFP than the exit of firms. And fourth, the pattern of within-industry misallocation and firm dynamics is the same for the manufacturing and the service sector.
Subjects: 
Great Recession in the UK
Factor Misallocation
FAME dataset
JEL: 
D24
E13
E32
L11
Document Type: 
Working Paper

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