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Macro and Micro Dynamics of Productivity: From Devilish Details to Insights

Listed author(s):
  • Lucia S. Foster
  • Cheryl A. Grim
  • John Haltiwanger
  • Zoltan Wolf

Researchers have been using a variety of methods to estimate productivity at the firm level. Absent data on prices and quantities, these methods yield what have become known as revenue productivity measures. How these measures are related to physical productivity depends on the assumptions about the environment in which establishments operate. It is perhaps less recognized that the differences across estimation methods have important consequences for interpretation. One such difference concerns revenue function estimates: while cost-share-based coefficients are, in principle, equivalent to factor elasticities, regression-based estimates equal factor elasticities only under strict assumptions about product markets. This implies that revenue residuals are conceptually different under these two broad approaches. Using plant-level manufacturing data for the U.S., we look at the empirical relevance of such distinctions in the context of key stylized facts of the productivity literature. First, we find non-trivial differences in estimated elasticities and returns to scale. The variation in elasticities affects numerical results on dispersion, yet all methods imply large productivity differences across establishments. More productive plants are shown to be more likely to grow and survive by all reviewed methods, although differences remain in the quantitative marginal effects of productivity. Reallocation is found to be comparable and productivity enhancing by all methods considered, but within-plant growth seems to be more sensitive. We find evidence that imputation and imposing homogeneous elasticities negatively affect within-industry dispersion. In addition, imputation results in some attenuation in growth and exit coe cients but does not invalidate qualitative conclusions.

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File URL: https://www2.census.gov/ces/wp/2017/CES-WP-17-41.pdf
File Function: First version, 2017
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 17-41.

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Length: 44 pages
Date of creation: Jan 2017
Handle: RePEc:cen:wpaper:17-41
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  2. Amil Petrin & Jerome Reiter & Kirk White, 2011. "The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 3-26, January.
  3. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
  4. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
  5. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-361, July-Aug..
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  7. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
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  9. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
  10. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
  11. T. Kirk White & Jerome P. Reiter & Amil Petrin, 2012. "Plant-level Productivity and Imputation of Missing Data in U.S. Census Manufacturing Data," NBER Working Papers 17816, National Bureau of Economic Research, Inc.
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  15. Amil Petrin & James Levinsohn, 2012. "Measuring aggregate productivity growth using plant-level data," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 705-725, December.
  16. Lucia Foster & John Haltiwanger & C. J. Krizan, 2006. "Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 748-758, November.
  17. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
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  19. Johannes Van Biesebroeck, 2007. "ROBUSTNESS OF PRODUCTIVITY ESTIMATES -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(3), pages 529-569, 09.
  20. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
  21. Lucia Foster & Cheryl Grim & John Haltiwanger & Zoltan Wolf, 2016. "Firm-Level Dispersion in Productivity: Is the Devil in the Details?," American Economic Review, American Economic Association, vol. 106(5), pages 95-98, May.
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