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Innovation, Productivity Dispersion, and Productivity Growth

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  • Lucia Foster
  • Cheryl Grim
  • John C. Haltiwanger
  • Zoltan Wolf

Abstract

We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields with a lag an increase in productivity dispersion and then after a subsequent lag an increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity.

Suggested Citation

  • Lucia Foster & Cheryl Grim & John C. Haltiwanger & Zoltan Wolf, 2018. "Innovation, Productivity Dispersion, and Productivity Growth," NBER Working Papers 24420, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24420
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    Cited by:

    1. Gonzales-Rocha, Erick & Mendez-Guerra, Carlos, 2018. "Increasing productivity dispersion: Evidence from light manufacturing in Brazil," MPRA Paper 88478, University Library of Munich, Germany.
    2. Ryan Decker & John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2018. "Changing Business Dynamism and Productivity : Shocks vs. Responsiveness," Finance and Economics Discussion Series 2018-007, Board of Governors of the Federal Reserve System (US).
    3. Cindy Cunningham & Lucia Foster & Cheryl Grim & John Haltiwanger & Sabrina Wulff Pabilonia & Jay Stewart & Zoltan Wolf, 2018. "Dispersion in Dispersion: Measuring Establishment-Level Differences in Productivity," Working Papers 18-25, Center for Economic Studies, U.S. Census Bureau.
    4. Nathan Goldschlag & Elisabeth Perlman, 2017. "Business Dynamic Statistics of Innovative Firms," Working Papers 17-72, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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