Innovative Growth Accounting

Authors

Peter J. Klenow

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2020-16 | April 30, 2020

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.

Article Citation

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

About the Author
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Huiyu Li is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Huiyu Li