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Small and Medium Firms, Aggregate Productivity and the Role of Dependencies

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  • Fornaro, Paolo
  • Luomaranta, Henri

Abstract

Abstract We analyze the productivity contribution of firms in the Finnish business sector, using data from 2002 until 2014, and assess the role of the dependency status (i.e. whether they are owned, at least partially, by a mother company) of small and medium enterprises in the manufacturing and services industries, together with the whole private business sector. We find that dependent firms have provided a larger contribution to aggregate productivity growth, compared to the independent ones, regardless of the industry, size class and age groups considered. This result is mainly driven by the better reallocation of labour among dependent companies and by the positive productivity contribution of dependent entrants. Inside the dependent category, the foreign controlled firms contribute more to the aggregate productivity than the other dependent companies due to even more efficient reallocation of labour inputs. Moreover, we find that dependent firms tend to reach their peak productivity earlier than their independent counterparts. Finally, we examine the subgroup of high growing enterprises and find that the positive effect of dependencies on the productivity contribution holds also for this class of firms.

Suggested Citation

  • Fornaro, Paolo & Luomaranta, Henri, 2017. "Small and Medium Firms, Aggregate Productivity and the Role of Dependencies," ETLA Working Papers 47, The Research Institute of the Finnish Economy.
  • Handle: RePEc:rif:wpaper:47
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    More about this item

    Keywords

    Productivity; Decomposition; Dependencies; Small and medium firms;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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