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Aggregate Productivity Growth: Lessons from Microeconomic Evidence

  • Lucia Foster
  • John Haltiwanger
  • C.J. Krizan

In this paper, we exploit establishment-level data to examine the relationship between microeconomic productivity dynamics and aggregate productivity growth. After synthesizing the evidence from recent studies, we conduct our own analysis using establishment-level data for U.S. manufacturing establishments as well for selected service industries. The use of longitudinal micro data on service sector establishments is one of the novel features of our analysis. Our main findings are summarized as follows: (i) the contribution of reallocation of outputs and inputs from less productive to more productive establishments plays a significant role in accounting for aggregate productivity growth; (ii) for the selected service industries considered, the contribution of net entry (more productive entering establishments displacing less productive exiting establishments) is dominant; (iii) the contribution of net entry to aggregate productivity growth is disproportionate and is increasing in the horizon over which the changes are measured since longer horizon yields greater differentials from selection and learning effects; (iv) the contribution of reallocation to aggregate productivity growth varies over time (e.g. is cyclically sensitive) and industries and is somewhat sensitive to subtle differences in measurement and decomposition methodologies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6803.

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Date of creation: Nov 1998
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Publication status: published as as Haltiwanger, John C. "Measuring and Analyzing Aggregate Fluctuations: The Importance of Building from Microeconomic Evidence," The Federal Reserve Bank of St. Louis Review, Vol. 79, no. 3 (May/June 1997): 55-77
Handle: RePEc:nbr:nberwo:6803
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