Selection, Firm Turnover, and Productivity Growth : Do Emerging Cities Speed Up the Process?
This paper identifies and estimates the impact of firm entry and exit on plant-level productivity in Ethiopia as part of a selection mechanism that might be driving aggregate productivity growth in cities. Specifically, the paper investigates how f...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/613111514905269837/Selection-firm-turnover-and-productivity-growth-do-emerging-cities-speed-up-the-process http://hdl.handle.net/10986/29126 |
| Summary: | This paper identifies and estimates the
impact of firm entry and exit on plant-level productivity in
Ethiopia as part of a selection mechanism that might be
driving aggregate productivity growth in cities.
Specifically, the paper investigates how firms’ entry and
exit contribute to the pace of factor reallocation and total
factor productivity growth within industries—and whether
these processes occur in higher numbers and rates in larger
cities. The analysis is carried out using establishment
census data from Ethiopia that cover the period from year
2000 to 2010. Importantly, these data include information on
plants’ physical outputs and their prices, which allows
distinguishing between revenue-based measures of total
factor productivity (TFPR) and those based on physical
productivity (TFPQ). The analysis reveals that these two
measures generate very different results under imperfect
competition, suggesting that physical productivity measures
(TFPQ) are better suited to examining firm dynamics when
local producers have some degree of market power. In
addition, the findings show that less productive (higher
cost) firms are more likely to exit than their more
productive (lower cost) rivals—but the analysis controls for
producers’ transport costs. This is consistent with the
probability of firm exit being higher when transport costs
are lower. |
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