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WHO QUITS NEXT? FIRM GROWTH IN GROWING ECONOMIES.

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity...

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Published in:Economic Inquiry Vol. 57; no. 1; pp. 33 - 50
Main Authors: Caunedo, Julieta, Yurdagul, Emircan
Format: Article
Published: Wiley-Blackwell Jan2019
Subjects:
Organizational growth
Employment
Economic development
Industrial productivity
Rate of return
Online Access:View this record in EBSCOhost
Summary:We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth.