Entry-exit, learning, and productivity change : evidence from Chile

This paper applies econometric techniques from the efficiency frontiers literature and the panel data literature to construct plant-specific time-variant technical efficiency indices for surviving, exiting, and entering cohorts. These are then used to compare productivity growth rates across plant cohorts and to examine the net effect of plant turnover and learning patterns on manufacturing-wide productivity growth. The analysis is based on plant-level panel data from Chile covering the period 1979-86. For several reasons, these data provide an excellent basis for inference. First, they include all Chilean manufacturing plants with at least 10 workers. Second, from 1974 to 1979 Chile underwent sweeping reform programs to liberalize its trade regime, privatize state firms, and deregulate markets. The author finds the importance of plant turnover and different learning patterns across cohorts in driving the Chilean manufacturing-wide productivity changes. She finds that: the evidence supports the hypothesis that competitive pressures force less efficient producers to fail more often than others; the ratio of skilled labor to unskilled labor is higher and increasing more rapidly among incumbents and entrants than among exiting plants; although the economywide recession affected the productivity of each cohort to different degrees, there are steady increases in productivity over the sample period.