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Population Growth and Firm Dynamics

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  • Michael Peters
  • Conor Walsh

Abstract

Population growth has declined markedly in almost all major economies since the 1970s. We argue this trend has important consequences for the process of firm dynamics and aggregate growth. We study a rich semi-endogenous growth model of firm dynamics, and show analytically that a decline in population growth reduces creative destruction, increases average firm size and concentration, raises market power and misallocation, and lowers aggregate growth in the long-run. We also show lower population growth has positive effects on the level of productivity, making the short-run welfare impacts ambiguous. In a quantitative application to the U.S, we find that the slowdown in population growth since the 1980s and the projected continuation of this trend accounts for a substantial share of the fall in the entry and exit rates and the increase in firm size. By contrast, the impact on markups is modest. The effect on aggregate growth is positive for around two decades, before turning negative thereafter.

Suggested Citation

  • Michael Peters & Conor Walsh, 2021. "Population Growth and Firm Dynamics," NBER Working Papers 29424, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:29424
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    Cited by:

    1. Bianca Barbaro & Giorgio Massari & Patrizio Tirelli, 2022. "Who killed business dynamism in the U.S.?," Working Papers 494, University of Milano-Bicocca, Department of Economics, revised Aug 2022.

    More about this item

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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