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Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis

J. David Brown () and John Earle ()

No 08-141, Upjohn Working Papers and Journal Articles from W.E. Upjohn Institute for Employment Research

Abstract: We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism, but they rise dramatically after reforms, and productivity contributions greatly exceed those observed in market economies. Early in transition, more reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and patticularly large productivity contributions tend to reflect previous neglect more than current virtue.

Keywords: productivity; reallocation; industry dynamics; entry; exit; creative destruction; reform; transition; Georgia; Hungary; Lithuania; Romania; Russia; Ukraine (search for similar items in EconPapers)
JEL-codes: E32 O47 P23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-mac
Date: 2008-08
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Working Paper: Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis (2008) Downloads
Working Paper: Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis (2008) Downloads
Working Paper: Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis (2008) Downloads
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