Productivity dispersion and firm growth in Canada

This study examines whether the growing disparity in labor productivity between firms in Canada is associated with the ability of these firms to grow in the Canadian economy. Using Canada’s Corporate Tax Statistics Universal File, we identify an inverted U-shaped relationship between labor productivity and fixed-asset growth rates, which subsequently results in a negative association between growing dispersion and lower growth rates. Econometric analyses reveal that a 1% increase in productivity dispersion leads to a 0.06 percentage point reduction in industry-level growth rates. We consider Schumpeterian and other evolutionary approaches for explaining this phenomenon and propose a simple population dynamics model.