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Discussion Papers no. 872

Productivity growth, firm turnover and new varieties

We reconcile two different strands of the literature: the literature on how new goods impact prices and the literature on productivity growth and firm turnover.

To our knowledge, this is the first paper to provide a fully consistent decomposition of aggregate productivity growth that identifies the contribution from new firms producing new varieties. We extend the estimator for the demand elasticity, proposed by Feenstra (1994) and supplemented by Soderbery (2015), in two dimensions: First, we create a two-stage estimation framework that exploits the boundary cases where simultaneity is not an issue, i.e. when supply is elastic or inelastic, to obtain a more efficient estimator. Second, we make it robust towards choice of reference unit. To illustrate the decomposition and estimator, we analyse the case of firm turnover in Norway, using panel data covering the period from 1995 to 2016 for manufacturing firms. Our results indicate that net creation of new varieties from firm turnover contributes by about one half percentage point to annual aggregate productivity growth.

About the publication

Title

Productivity growth, firm turnover and new varieties

Author

Thomas von Brasch, Diana-Cristina Iancu, Arvid Raknerud

Series and number

Discussion Papers no. 872

Publisher

Statistisk sentralbyrå

Topic

Discussion Papers

ISSN

1892-753X

Number of pages

48

About Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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