Productivity and Reallocation: Evidence from the Universe of Italian Firms

42 Pages Posted: 2 Feb 2017

Date Written: September 22, 2016

Abstract

This paper investigates the contribution of allocative efficiency to aggregate labor productivity growth in Italy between 2005 and 2013. Exploiting a unique dataset that covers the universe of active firms, we find that allocative efficiency accounted for 35 per cent of aggregate productivity in 2005 and its weight increased by almost 7 percentage points during the period of observation. We show that the dynamics of aggregate labor productivity benefited from the reallocation of resources among continuing firms and from the net effect of business demography. Among industries, we find that reallocation has been stronger in industries that are more exposed to import competition from developing countries. Moreover, we document that the observed adjustments have not evenly affected all firms across the productivity distribution: selection has become tougher for firms belonging to the lower tail, forcing the exit of the least productive firms and favoring the reallocation of the workforce to the best performing firms.

Keywords: aggregate labor productivity, allocative efficiency

JEL Classification: L25, O47

Suggested Citation

Linarello, Andrea and Petrella, Andrea, Productivity and Reallocation: Evidence from the Universe of Italian Firms (September 22, 2016). Bank of Italy Occasional Paper No. 353, Available at SSRN: https://ssrn.com/abstract=2910391 or http://dx.doi.org/10.2139/ssrn.2910391

Andrea Linarello

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Petrella (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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