Working Papers

2020-16 | April 2020

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Innovative Growth Accounting

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Recent work highlights a falling entry rate of new firms and a rising market share of large firms in the United States. To understand how these changing firm demographics have affected growth, we decompose produc­tivity growth into the firms doing the innovating. We trace how much each firm innovates by the rate at which it opens and closes plants, the market share of those plants, and how fast its surviving plants grow. Using data on all nonfarm businesses from 1982-2013, we find that new and young firms (ages Oto 5 years) account for almost one-half of growth- three times their share of employment. Large established firms contribute only one-tenth of growth despite representing one-fourth of employment. Older firms do explain most of the speedup and slowdown during the middle of our sam­ple. Finally, most growth takes the form of incumbents improving their own products, as opposed to creative destruction or new varieties.

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Article Citation

Klenow, Peter J, and Huiyu Li. 2020. "Innovative Growth Accounting," Federal Reserve Bank of San Francisco Working Paper 2020-16. Available at https://doi.org/10.24148/wp2020-16