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What Do We Know About Changing Economic Activity of Firms?

Radhika Pandey (), Amey Sapre () and Pramod Sinha

Studies in Microeconomics, 2020, vol. 8, issue 2, 149-169

Abstract: Identification of primary economic activity of firms is a prerequisite for compiling several macro aggregates. In this paper, we take a statistical approach to understand the extent of changes in primary economic activity of firms over time and across different industries. We use the history of economic activity of over 46,000 firms spread over 25 years from CMIE Prowess to identify the number of times firms change the nature of their business. Using the count of changes, we estimate Poisson and Negative Binomial regression models to gain predictability over changing economic activity across industry groups. We show that a Poisson model accurately characterizes the distribution of count of changes across industries and that firms with a long history are more likely to have changed their primary economic activity over the years. Findings show that classification can be a crucial problem in a large data set like the MCA21 and can even lead to distortions in value addition estimates at the industry level. JEL Classifications: D22, E00, E01

Keywords: Economic activity; Manufacturing; India; poisson distribution (search for similar items in EconPapers)
Date: 2020
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Working Paper: What do we Know about Changing Economic Activity of Firms? (2019) Downloads
Working Paper: What do we know about changing economic activity of firms? (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:sae:miceco:v:8:y:2020:i:2:p:149-169

DOI: 10.1177/2321022219869790

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