Population Growth and Firm Dynamics

Michael Peters and Conor Walsh

No 29424, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Population growth has declined markedly in almost all major economies since the 1970s. We argue this trend has important consequences for the process of firm dynamics and aggregate growth. We study a rich semi-endogenous growth model of firm dynamics, and show analytically that a decline in population growth reduces creative destruction, increases average firm size and concentration, raises market power and misallocation, and lowers aggregate growth in the long-run. We also show lower population growth has positive effects on the level of productivity, making the short-run welfare impacts ambiguous. In a quantitative application to the U.S, we find that the slowdown in population growth since the 1980s and the projected continuation of this trend accounts for a substantial share of the fall in the entry and exit rates and the increase in firm size. By contrast, the impact on markups is modest. The effect on aggregate growth is positive for around two decades, before turning negative thereafter.

JEL-codes: J11 L11 O3 O4 O44 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-dem, nep-ent, nep-gro, nep-lab and nep-tid
Note: EFG PR
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Citations: View citations in EconPapers (9)

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