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Productivity And Firm Dynamics Over The Business Cycle Pandemic

Author

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  • Abraham Assefa
  • Darya Lapitskaya
  • Lenno Uusküla

Abstract

The paper studies the effects of technology shocks on the creation and destruction of firms. Using US data and a VAR model the paper finds Schumpeterian creative destruction for investment-specific technology shocks. A positive investment-specific technology shock increases the number of firms opening, but also leads to a higher number of firms closing. In contrast, labour-neutral technology shocks also benefit old firms. An increase in overall productivity leads to an increase in the number of new firms and a drop in the number of failures. Both margins contribute to an increase in the number of firms in the economy. A medium-scale DSGE model with endogenous entry and exit that is that is augmented with additional features is able to capture these stylised facts.

Suggested Citation

  • Abraham Assefa & Darya Lapitskaya & Lenno Uusküla, 2022. "Productivity And Firm Dynamics Over The Business Cycle Pandemic," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 141, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    • Handle: RePEc:mtk:febawb:141
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    Keywords

    VAR; DSGE; Firm dynamics; Productivity; Firm turnover; Technology shocks; Investment specific technology shocks;
    All these keywords.

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