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The Slow Growth of New Plants: Learning about Demand?

Author

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  • Lucia Foster
  • John Haltiwanger
  • Chad Syverson

Abstract

type="main" xml:id="ecca12172-abs-0001"> It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather show differences in demand-side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g. building a customer base). We find that active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.

Suggested Citation

  • Lucia Foster & John Haltiwanger & Chad Syverson, 2016. "The Slow Growth of New Plants: Learning about Demand?," Economica, London School of Economics and Political Science, vol. 83(329), pages 91-129, January.
    • Handle: RePEc:bla:econom:v:83:y:2016:i:329:p:91-129
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    File URL: http://hdl.handle.net/10.1111/ecca.2016.83.issue-329
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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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