Firm Dynamics and Productivity: TFPQ, TFPR, and Demand Side Factors

Two common ndings in the rm dynamics literature are that there is large disper- sion across rms in productivity within narrowly de ned industries and that rms that are high in the within-industry distribution are more likely to survive and grow. These ndings underlie a rich class of models relating the level and growth of aggregate (industry-level) productivity to the reallocation of resources away from less productive to more productive rms. While these ndings are common, there are a variety of empirical measures of rm-level total factor productivity that have been used in the literature to generate these ndings. These include mea- sures that are closer to the concepts of technical ef ciency common in many models to measures that encompass demand-side factors as well. In addition, the recent literature has developed methods to extract measures of distortions from speci c measures of dispersion in productivity given assumptions about the production and demand functions in the economy. In this paper, I discuss the relationship between the alternative measures that have been proposed and used in the literature and, in turn, the implications of these relationships for our understanding of observed rm dynamics.