IDEAS home Printed from https://ideas.repec.org/p/red/sed012/810.html
   My bibliography  Save this paper

What drives firm growth? The role of demand and TFP shocks

Author

Listed:
  • Fabiano Schivardi

    (University of Cagliari)

  • Andrea Pozzi

    (Einaudi Institute for Economics and Fina)

Abstract

We disentangle the contribution of unobserved heterogeneity in idiosyncratic demand and productivity to firm growth. We use a model of monopolistic competition with Cobb-Douglas production and a dataset of Italian manufacturing firms containing unique information on firm-level prices to reach three main results. First, demand is at least as important for firm growth as productivity. Second, firms' responses to shocks are lower than those predicted by our frictionless model, suggesting the existence of adjustment frictions. Finally, the deviation is more substantial for TFP shocks. We provide direct evidence that sluggish price adjustment influences responses to shocks, magnifying the effect of market appeal and dampening that of TFP. Moreover, organizational rigidity within the firm also contributes to reducing the response to TFP shocks, while it has no effects on that to demand shocks. These findings emphasize the importance of considering both dimensions of unobserved heterogeneity. They also imply that it is more difficult to fully adjust to TFP shocks.

Suggested Citation

  • Fabiano Schivardi & Andrea Pozzi, 2012. "What drives firm growth? The role of demand and TFP shocks," 2012 Meeting Papers 810, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:810
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2012/paper_810.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1351-1408.
    2. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
    3. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
    4. Per Skedinger, 2010. "Employment Protection Legislation," Books, Edward Elgar Publishing, number 13686.
    5. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    6. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, vol. 15(3), pages 482-511, June.
    7. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    8. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    9. Bruno, Michael, 1978. "Duality, Intermediate Inputs and Value-Added," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.),Production Economics: A Dual Approach to Theory and Applications, volume 2, chapter 1, McMaster University Archive for the History of Economic Thought.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrea Pozzi & Fabiano Schivardi, 2016. "Demand or productivity: what determines firm growth?," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 608-630, August.
    2. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    3. Bena Jan & Ondko Peter & Vourvachaki Evangelia, 2011. "Productivity Gains from Services Liberalization in Europe," EERC Working Paper Series 11/15e, EERC Research Network, Russia and CIS.
    4. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    5. Luis Medrano-Adán & Vicente Salas-Fumás & J. Javier Sanchez-Asin, 2019. "Firm size and productivity from occupational choices," Small Business Economics, Springer, vol. 53(1), pages 243-267, June.
    6. Sergey Lychagin & Joris Pinkse & Margaret E. Slade & John Van Reenen, 2016. "Spillovers in Space: Does Geography Matter?," Journal of Industrial Economics, Wiley Blackwell, vol. 64(2), pages 295-335, June.
    7. Andrew Sweeting, 2007. "Dynamic Product Repositioning in Differentiated Product Markets: The Case of Format Switching in the Commercial Radio Industry," NBER Working Papers 13522, National Bureau of Economic Research, Inc.
    8. Wright, Mark, 2004. "Firm Size Dynamics in the Aggregate Economy," Santa Cruz Department of Economics, Working Paper Series qt4rs4202s, Department of Economics, UC Santa Cruz.
    9. Oliner, Stephen D. & Sichel, Daniel E. & Stiroh, Kevin J., 2008. "Explaining a productive decade," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 633-673.
    10. Maican, Florin G., 2012. "From Boom to Bust and Back Again: A dynamic analysis of IT services," Working Papers in Economics 543, University of Gothenburg, Department of Economics.
    11. M. Battisti & F. Belloc & M. Del Gatto, 2017. "Technology-specific Production Functions," Working Paper CRENoS 201709, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    12. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2006. "Labour Adjustment: Disentangling Firing and Mobility Costs," CEPR Discussion Papers 5787, C.E.P.R. Discussion Papers.
    13. Leonid Kogan & Dimitris Papanikolaou & Amit Seru & Noah Stoffman, 2017. "Technological Innovation, Resource Allocation, and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 132(2), pages 665-712.
    14. Nadav Ben Zeev & Tomer Ifergane, . "Firing Restrictions and Economic Resilience: Protect and Survive?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    15. Diego Restuccia, 2019. "Misallocation and aggregate productivity across time and space," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 5-32, February.
    16. Timothy Besley & Hannes Mueller, 2018. "Predation, Protection, and Productivity: A Firm-Level Perspective," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(2), pages 184-221, April.
    17. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2010. "Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 378-391, May.
    18. repec:jns:jbstat:v:227:y:2007:i:3:p:254-272 is not listed on IDEAS
    19. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    20. Apoorv Gupta & Jacopo Ponticelli & Andrea Tesei, 2020. "Information, Technology Adoption and Productivity: The Role of Mobile Phones in Agriculture," NBER Working Papers 27192, National Bureau of Economic Research, Inc.
    21. Lachenmaier Stefan & Rottmann Horst, 2007. "Employment Effects of Innovation at the Firm Level," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(3), pages 254-272, June.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed012:810. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.