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The Nature of Firm Growth

Author

Listed:
  • Benjamin W. Pugsley

    (University of Notre Dame)

  • Petr Sedlacek

    (Centre for Macroeconomics (CFM)
    University of Oxford)

  • Vincent Sterk

    (Centre for Macroeconomics (CFM)
    University College London (UCL))

Abstract

Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, "up-or-out" dynamics, and the associated gains in aggregate output. "Gazelles" - a small subset of startups with particularly high growth potential - emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that gazelles are driven towards extinction, creating substantial aggregate losses.

Suggested Citation

  • Benjamin W. Pugsley & Petr Sedlacek & Vincent Sterk, 2017. "The Nature of Firm Growth," Discussion Papers 1737, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1737
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    More about this item

    Keywords

    Firm dynamics; Startups; Macroeconomics; Big data;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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