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The Slow Growth of New Plants: Learning about Demand?

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  • John Haltiwanger

    (University of Maryland and NBER)

  • Chad Syverson

    (University of Chicago and NBER)

  • Lucia Foster

    (Bureau of the Census)

Abstract

Many studies using business-level microdata have documented large size average differences across plant ages. New businesses tend to be much smaller than their established industry competitors. This size gap also closes slowly, taking well over a decade on average. We show that even for producers of commodity-like products, these patterns are not driven by productivity gaps. New plants are just as technically efficient as, if not more than, older plants. They are small in spite of their prices, not because of them. The patterns instead appear to be linked to differences in demand-side fundamentals. New plants start with a considerable demand deficit and only slowly erase it over time—if they survive at all. We document patterns in plants’ idiosyncratic demand levels, and explore the sources of their variance across plants and growth rates within them. We estimate a dynamic model of plant expansion in the presence of a “demand accumulation” process (e.g., building a customer base) that allows both passive accumulation over time and active accumulation related to plants’ past production decisions. We find interesting differences in the levels and growth rates of plants depending on the types of firms that own them.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 128.

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Date of creation: 2010
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Handle: RePEc:red:sed010:128

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Citations

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Cited by:
  1. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan, vol. 61(3), pages 520-559, August.
  2. Andrea Weber & Christine Zulehner, 2014. "Competition And Gender Prejudice: Are Discriminatory Employers Doomed To Fail?," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 492-521, 04.
  3. Francois Gourio & Leena Rudanko, 2011. "Customer Capital," NBER Working Papers 17191, National Bureau of Economic Research, Inc.
  4. Smeets, Valérie & Warzynski, Frédéric, 2010. "Learning by Exporting, Importing or Both? Estimating productivity with multi-product firms, pricing heterogeneity and the role of international trade," Working Papers 10-13, University of Aarhus, Aarhus School of Business, Department of Economics.
  5. Amitabh Chandra & Amy Finkelstein & Adam Sacarny & Chad Syverson, 2013. "Healthcare Exceptionalism? Productivity and Allocation in the U.S. Healthcare Sector," NBER Working Papers 19200, National Bureau of Economic Research, Inc.
  6. Hsieh, Chang-Tai & Klenow, Peter J., 2012. "The Life Cycle of Plants in India and Mexico," Working Papers 12-20, Center for Economic Studies, U.S. Census Bureau.
  7. Nicholas Trachter & Andrea Pozzi & Luigi Paciello, 2014. "Markups Dynamics with Customer Markets," 2014 Meeting Papers 39, Society for Economic Dynamics.
  8. Allen Tran, 2013. "Customer Driven Establishment Dynamics and Allocative Efficiency," 2013 Meeting Papers 115, Society for Economic Dynamics.
  9. Di Comite, Francesco & Thisse, Jacques-François & Vandenbussche, Hylke, 2014. "Verti-zontal differentiation in export markets," Journal of International Economics, Elsevier, vol. 93(1), pages 50-66.
  10. Svetlana Demidova & Kala Krishna & Hiau Looi Kee & Ivan Cherkashin, 2009. "Firm Heterogeneity and Costly Trade: A New Estimation Strategy and Policy Experiments," 2009 Meeting Papers 1199, Society for Economic Dynamics.
  11. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  12. Bart J. Bronnenberg & Jean-Pierre H. Dube & Matthew Gentzkow, 2010. "The Evolution of Brand Preferences: Evidence from Consumer Migration," NBER Working Papers 16267, National Bureau of Economic Research, Inc.

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