The Slow Growth of New Plants: Learning About Demand?

39 Pages Posted: 19 Jan 2016

See all articles by Lucia Foster

Lucia Foster

U.S. Census Bureau - Center for Economic Studies

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Chad Syverson

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2016

Abstract

It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity‐like product markets, these patterns do not reflect productivity gaps, but rather show differences in demand‐side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g. building a customer base). We find that active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within‐firm spillovers affect demand levels but not growth.

Suggested Citation

Foster, Lucia and Haltiwanger, John C. and Syverson, Chad, The Slow Growth of New Plants: Learning About Demand? (January 2016). Economica, Vol. 83, Issue 329, pp. 91-129, 2016. Available at SSRN: https://ssrn.com/abstract=2716743 or http://dx.doi.org/10.1111/ecca.12172

Lucia Foster (Contact Author)

U.S. Census Bureau - Center for Economic Studies ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Chad Syverson

University of Chicago Booth School of Business ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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