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Population Growth and Firm Dynamics

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  • Michael Peters
  • Conor Walsh

Abstract

Firm-based theories of creative destruction in the spirit of Klette and Kortum are the workhorse models linking firm dynamics and growth. Because they typically assume a constant population, they are ill equipped to study the implications of falling population growth. We propose a framework that overcomes this shortcoming. Our theory implies that neither the growth rate nor the size distribution is subject to scale effects, and it generates a thick-tailed employment distribution. Lower population growth reduces entry, increases concentration, raises market power, and lowers growth. These predictions are consistent with the experience of the United States and many developed economies.

Suggested Citation

  • Michael Peters & Conor Walsh, 2026. "Population Growth and Firm Dynamics," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 4(2), pages 256-296.
    • Handle: RePEc:ucp:jpemac:doi:10.1086/740426
    DOI: 10.1086/740426
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