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Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis

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  • J. David Brown

    (Heriot-Watt University)

  • John S. Earle

    (W.E. Upjohn Institute for Employment Research and Central European University)

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, but they rise dramatically after reforms, and productivity contributions greatly exceed those observed in market economies. Early in transition, more 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 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 patticularly large productivity contributions tend to reflect previous neglect more than current virtue.

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Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number 08-141.

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Date of creation: Aug 2008
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Handle: RePEc:upj:weupjo:08-141

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Keywords: productivity; reallocation; industry dynamics; entry; exit; creative destruction; reform; transition; Georgia; Hungary; Lithuania; Romania; Russia; Ukraine;

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Cited by:
  1. Békés, Gábor & Halpern, László & Muraközy, Balázs, 2011. "A teremtő rombolás szerepe a vállalati termelékenység alakulásában Magyarországon
    [The role of creative destruction in the development of corporate productivity in Hungary]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 111-132.
  2. Boeri, Tito & Macis, Mario, 2010. "Do unemployment benefits promote or hinder job reallocation?," Journal of Development Economics, Elsevier, vol. 93(1), pages 109-125, September.
  3. Hallward-Driemeier, Mary & Rijkers, Bob, 2011. "Do crises catalyze creative destruction ? firm-level evidence from Indonesia," Policy Research Working Paper Series 5869, The World Bank.
  4. Péter Harasztosi, 2011. "Growth in Hungary 1994-2008: The role of capital, labour, productivity and reallocation," MNB Working Papers 2011/12, Magyar Nemzeti Bank (the central bank of Hungary).

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