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The Slow Growth of New Plants: Learning about Demand?

Author

Listed:
  • John Haltiwanger

    (University of Maryland)

  • Chad Syverson

    (Univ. of Chicago, Booth School)

  • Lucia Foster

    (U.S. Census Bureau)

Abstract

Many studies using business-level microdata have documented large size average differences across plant ages. New businesses tend to be much smaller than their established industry competitors. This size gap also closes slowly, taking well over a decade on average. We show that even for producers of commodity-like products, these patterns are not driven by productivity gaps. New plants are just as technically efficient as, if not more than, older plants. They are small in spite of their prices, not because of them. The patterns instead appear to be linked to differences in demand-side fundamentals. New plants start with a considerable demand deficit and only slowly erase it over time—if they survive at all. We document patterns in plants’ idiosyncratic demand levels, and explore the sources of their variance across plants and growth rates within them. We estimate a dynamic model of plant expansion in the presence of a “demand accumulation” process (e.g., building a customer base) that allows both passive accumulation over time and active accumulation related to plants’ past production decisions. We find interesting differences in the levels and growth rates of plants depending on the types of firms that own them.

Suggested Citation

  • John Haltiwanger & Chad Syverson & Lucia Foster, 2010. "The Slow Growth of New Plants: Learning about Demand?," 2010 Meeting Papers 106, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:106
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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