Macro and Micro Dynamics of Productivity: From Devilish Details to Insights
G. Jacob Blackwood
Lucia S. Foster
Cheryl A. Grim
- American Economic Journal: Macroeconomics (Forthcoming)
Firm-level revenue-based productivity measures are ubiquitous in studies of firm dynamics
and aggregate outcomes. One common measure is increasingly interpreted as reflecting "distortions"
since in distortions' absence, equalization of marginal revenue products should yield
no dispersion in this measure. Another common, but distinct, measure is the residual of the
firm-level revenue function, which reflects "fundamentals". Using micro-level U.S. manufacturing
data, we find these alternative measures are highly correlated, exhibit similar dispersion,
and have similar relationships with growth and survival. However, the distinction between these
alternative measures is critically important for quantitative assessment of the level and decline
of allocative efficiency.
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