Firm Dynamics and Productivity Growth : A Review of Micro Evidence from OECD Countries

This paper surveys recent empirical studies exploring aggregate productivity growth based on firm dynamics, focusing on micro-data from OECD countries. Aggregate productivity growth can be analysed as a sum of two separate processes. i) Changes in productivity in individual firms at a given size (relative to market). And, ii) a reallocation process due to compositional effects arising from the expansion and contraction of existing firms as well as from entry and exit of firms (namely, firm dynamics). After reviewing theoretical explanations and empirical methods for firm dynamics and productivity growth, the paper looks into major findings from the manufacturing sector under three subsections: firm dynamics, productivity correlates, and productivity decomposition. The paper also reviews methodological issues and some findings from the emerging literature of empirical studies on the service sector