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Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis

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  • J. David Brown
  • John Earle

Abstract

We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism. After reforms, they rise dramatically, and productivity contributions greatly exceed those observed in market economies. Early in transition, faster reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates much higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.

Suggested Citation

  • J. David Brown & John Earle, 2008. "Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis," CERT Discussion Papers 0805, Centre for Economic Reform and Transformation, Heriot Watt University.
    • Handle: RePEc:hwe:certdp:0805
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    Citations

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    Cited by:

    1. Carlo Gianelle, 2014. "Discovering the Regional Small World of Labour Mobility. Evidence from Linked Employer-Employee Data," Regional Studies, Taylor & Francis Journals, vol. 48(7), pages 1263-1278, July.
    2. Mary Hallward-Driemeier & Bob Rijkers, 2013. "Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1788-1810, December.
    3. Carlo Gianelle, 2011. "Exploring the complex structure of labour mobility networks. Evidence from Veneto microdata," Working Papers 2011_13, Department of Economics, University of Venice "Ca' Foscari".
    4. Tyrowicz, Joanna & van der Velde, Lucas, 2018. "Labor reallocation and demographics," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 381-412.
    5. Andres Kuusk & Karsten Staehr & Uku Varblane, 2015. "Sectoral change and labour productivity growth during boom, bust and recovery," Bank of Estonia Working Papers wp2015-2, Bank of Estonia, revised 30 Dec 2015.
    6. Boeri, Tito & Macis, Mario, 2010. "Do unemployment benefits promote or hinder job reallocation?," Journal of Development Economics, Elsevier, vol. 93(1), pages 109-125, September.
    7. Péter Harasztosi, 2011. "Growth in Hungary 1994-2008: The role of capital, labour, productivity and reallocation," MNB Working Papers 2011/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    8. Andres Kuusk & Karsten Staehr & Uku Varblane, 2017. "Sectoral change and labour productivity growth during boom, bust and recovery in Central and Eastern Europe," Economic Change and Restructuring, Springer, vol. 50(1), pages 21-43, February.
    9. Álmos Telegdy, 2016. "Employment adjustment in the global crisis," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(4), pages 683-703, October.
    10. Voskoboynikov, Ilya B., 2017. "Structural change, expanding informality and labour productivity growth in Russia," BOFIT Discussion Papers 18/2017, Bank of Finland, Institute for Economies in Transition.
    11. Erixon, Lennart, 2016. "Building a path of equality to economic progress and macroeconomic stability - the economic theory of the Swedish model," Research Papers in Economics 2016:3, Stockholm University, Department of Economics.
    12. Békés, Gábor & Halpern, László & Muraközy, Balázs, 2011. "A teremtő rombolás szerepe a vállalati termelékenység alakulásában Magyarországon
      [The role of creative destruction in the development of corporate productivity in Hungary]      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 111-132.

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    Keywords

    productivity; reallocation; industry dynamics; entry; exit; creative destruction; reform; transition; Georgia; Hungary; Lithuania; Romania; Russia; Ukraine;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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