The Reallocation Myth

Chang-Tai Hsieh and Pete Klenow

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: There is a widely held view that much of growth in the U.S. can be attributed to reallocation from low to high productivity firms, including from exiting firms to entrants. Declining dynamism — falling rates of reallocation and entry/exit in the U.S. — have therefore been tied to the lackluster growth since 2005. We challenge this view. Gaps in the return to resources do not appear to have narrowed, suggesting that allocative efficiency has not improved in the U.S. in recent decades. Reallocation can also matter if it is a byproduct of innovation. However, we present evidence that most innovation comes from existing firms improving their own products rather than from entrants or fast-growing firms displacing incumbent firms. Length: 26 pages

Date: 2018-04
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ent, nep-ino, nep-sbm and nep-tid
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Citations: View citations in EconPapers (21)

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https://www2.census.gov/ces/wp/2018/CES-WP-18-19.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:18-19

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