OECD
Conference on “Understanding Entrepreneurship:
Issues and Numbers”
Firm dynamics, productivity and job
creation: Some evidence
Stefano Scarpetta
Lead Economist
The World Bank
Paris
26 – 27 October 2005
Plan of the presentation
1. Distributed micro analysis to assess firm dynamics and its
role for productivity and job creation
2. The magnitude and characteristics of firm demographics
•
•
•
Firm size at entry;
Firm survival
Post entry growth
3. Resource reallocation, firm demographics and productivity
•
•
Static efficiency
Dynamic efficiency
4. Concluding remarks: can we use firm-level data to assess
entrepreneurship and the policy challenges
26 October,
2005
Stefano Scarpetta
1. Distributed micro analysis
• The challenge of cross-country analysis:
 Sectoral data
• e.g. OECD-STAN; Unido
• aggregate sectors obscure causal mechanism
 Meta-analysis of results from micro studies
• A challenge to control for data, method, and context
• Little within-country variation in policy (e.g. before and after)
 Cross-country longitudinal micro dataset
• Generally not possible (disclosure)
• EUROSTAT attempting to build EU panel, but from existing
databases, DG MARTK
26 October,
2005
Stefano Scarpetta
1. Distributed micro analysis
• OECD sample
 Demographics (entry/exit) for 10 countries
 Productivity decompositions for 7 countries
 Survival analysis 7 countries
• World Bank sample
•
 Same variables, 14 Central and Eastern Europe, Latin
America and South East Asia
Data are disaggregated by:
 industry (2-3 digit);
 size classes 1-9; 10-19; 20-49; 50-99; 100-249; 250-499; 500+ (for
OECD sample the groups between 1 and 20 and the groups
between 100 and 500 are combined)
 Time (late 1980s – late 1990s)
26 October,
2005
Stefano Scarpetta
1. Distributed micro analysis
Policy Question
Research Design
Network
Researcher
Distributed micro data research
Program Code
Publication
Metadata
Cross-country
Tables
Network
members
NSOs
Provision of metadata.
Approval of access.
Disclosure analysis
of tables for Centre.
Disclosure analysis of Publication
26 October,
2005
Stefano Scarpetta
1. Distributed micro analysis
 Unit of measurement: Firm, following (Eurostat, 1998)
“an organizational unit producing goods or services
which benefits from a certain degree of autonomy in
decision-making, especially for the allocation of its
current resources”.
 Data extracted following same protocols by experts in each
countries, Mika Maliranta, Satu Nurmi, Jonathan Haskel,
Richard Duhaitois, Pedro Portugal, Thorsten Schank, Fabiano
Schivardi, Ralf Marten, Ylva Heden, Ellen Hogenboom,
Mihail Hazans, Jaan Masso, John Earle, Milan Vodopivec,
Maurice Kugler, Mark Roberts, Andrea Repetto, Gabriel
Sanchez, David Kaplan...
26 October,
2005
Stefano Scarpetta
2. The magnitude and characteristics of
firm demographics
(firms with fewer than 20 employees as a percentage of total)
Firms
NonAgriculture
Total
Business
economy
Sector (1)
Manufacturing
Industrial countries
Denmark
91.3
89.5
76.6
France
82.1
82.3
77.9
Italy
93.8
93.8
88.6
Netherlands
96.3
96.5
88.3
Finland
93.6
92.7
85.4
West Germany
89.6
85.8
83.3
East Germany
87.5
88.4
81.1
Portugal
89.2
88.9
75.3
UK
81.3
USA
88.0
88.0
72.6
Latin America
Brazil
82.4
Mexico
90.1
90.0
82.8
Argentina
90.0
89.4
82.1
Transition economies
Slovenia
87.7
88.0
71.6
Hungary
84.4
85.5
71.1
Estonia
80.6
81.3
64.6
Latvia
87.7
87.7
87.8
Romania
90.9
91.5
77.1
East Asia
Korea (2)
57.0
Taiwan (China)
82.5
* Share of Employment with less than 20 employees
26 October,
2005
(2)
In Korea, data cover firms with 5 or more employees.
Total
business
services
92.3
82.0
96.0
97.1
95.3
0.0
90.3
93.8
32.7
15.9
35.9
31.8
29.5
25.8
27.5
32.2
31.1
16.0
39.6
36.8
32.7
23.8
33.3
31.4
88.7
18.4
19.3
17.6
19.9
31.3
18.3
13.5
16.6
22.9
18.9
12.4
6.7
92.2
91.2
23.2
27.7
24.5
27.7
17.7
13.9
21.3
28.5
27.7
93.1
90.8
87.1
87.6
95.6
13.4
16.0
22.8
24.7
12.9
13.5
16.4
22.6
24.8
12.8
5.1
8.8
11.5
26.9
4.2
26.0
23.6
34.2
24.2
31.6
Stefano Scarpetta
(1) This aggregates excludes agriculture (ISIC 1-5) and community services (ISIC3: 75-79)
Total
economy
Employment*
NonAgriculture
Total
Business
business
Sector (1)
Manufacturing services
11.1
26.6
35.0
13.6
36.4
32.9
39.1
0.0
28.2
42.9
19.9
2. The magnitude and characteristics of
firm demographics
• Entry and exit rates tend to be similar across
countries
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26 October,
2005
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Entry
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2. The magnitude and characteristics of
firm demographics
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26 October,
2005
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Stefano Scarpetta
2. The magnitude and characteristics of
firm demographics
• Post-entry employment growth varies more across
countries
Average firm size growth relative to entry, by age
100
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50
40
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26 October,
2005age=2
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Stefano Scarpetta
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3. Assessing the role of firm dynamics on
productivity
• The cross-sectional efficiency of resource
allocation
• The dynamic efficiency: the role of entry
and exit
• The heterogeneity of firms and the effects on
productivity
26 October,
2005
Stefano Scarpetta
The cross-sectional efficiency of the
allocation of activity
• Olley and Pakes (1996) note that in the cross section, the
level of productivity for a sector at a point in time can be
decomposed as follows:
Pt  (1 / N t ) Pit   D it DPit
i
i
where: N: # of firms in a sector; D is the operator for the cross
sectoral deviation from sectoral average
The first term is the unweighted average of firm-level
productivity, the second term reflects the cross-sectional efficiency
of the allocation of resources. The cross term captures allocative
efficiency since it reflects the extent to which firms with greater
efficiency have a greater market
share.
26 October,
Stefano Scarpetta
2005
The cross-sectional efficiency of the
allocation of activity
The Gap Between Weighted and Un-Weighted
Labor Productivity, 1990s
Five-Year Differencing, Real Gross Output, Manufacturing
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Data for Hungary, Indonesia and Romania
use
Three-Year Differencing.
26 October,
Stefano
Scarpetta
Excluding Brazil and Venezuela.
2005
The dynamic efficiency
• Foster, Haltiwanger and Krizan (FHK , 2001) : in this decomposition, each term is weighted
by the average (over 3/5 years) market shares as follows:
 D p   D ( p  P )   D  D p
DP  
  ( p  P )   ( p  P )
t
iC
it  k
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it
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it  k
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it  k
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t k
 The within-firm effect is within-firm productivity growth weighted by initial output shares.
 The between-firm effect captures the gains in aggregate productivity coming from the



expanding market of high productivity firms, or from low-productivity firms’ shrinking
shares weighted by initial shares.
The ‘cross effect’ reflects gains in productivity from high-productivity growth firms’
expanding shares or from low-productivity growth firms’ shrinking shares.
The entry effect is the sum of the differences between each entering firm’s productivity and
initial productivity in the industry, weighted by its market share.
The exit effect is the sum of the differences between each exiting firm’s productivity and
initial productivity in the industry, weighted by its market share.
26 October,
2005
Stefano Scarpetta
The dynamic efficiency: the role of
entry and exit
• The contribution of entry and exit of firms to total
labor productivity growth
Estonia
Latvia
Korea, Rep.
Indonesia
Taiwan (China)
Romania
Chile
Portugal
Netherlands
Slovenia
Colombia
USA
Hungary
France
Germany (west)
Argentina
26 October,
2005
0
5
10
15
20
25
Stefano Scarpetta
30
35
(in % of total productivity growth)
40
45
50
The dynamic efficiency: the role of
entry and exit
• Stronger contribution of entry to productivity growth
in medium high tech industries
1.5
1
0.5
0
-0.5
-1
26 October,
2005
Low tech industries
Scarpetta
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high-tech
industries
SA
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The dynamic efficiency: which firms
increase employment?
• The heterogeneity of firms: labor productivity and
growth
Firm growth by Initial Productivity
firm growth (%)
8
6
FIN
4
FRA
GBR
2
NLD
0
-2 0
SWE
20
40
60
80
120
USA
EUx
-4
26 October,
2005
100
LPV (US $,
1000/worker)
Stefano
Scarpetta
Concluding remarks
• Sizeable process of creative destruction in ALL countries
• Differences in the nature of the process of creative destruction; Market
•
•
•
experimentation
Strong contribution of resource reallocation on productivity from both
static and dynamic perspectives
Differences in the role of creative destruction on productivity growth
across countries and technology groups
Differences in degree of firm heterogeneity across countries
More barriers to growth than barriers to entry
•
•
Factors that may promote experimentation:
• More market-based financial system
• Lower administrative costs of start up
• Lower costs of adjusting the workforce to accommodate changes in
26 October, demand
Stefano Scarpetta
2005