Innovation, Productivity Dispersion, and Productivity Growth

42 Pages Posted: 20 Mar 2018

See all articles by Lucia Foster

Lucia Foster

U.S. Census Bureau - Center for Economic Studies

Cheryl Grim

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)

Zoltan Wolf

U.S. Census Bureau - Center for Economic Studies

Date Written: March 2018

Abstract

We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields with a lag an increase in productivity dispersion and then after a subsequent lag an increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity.

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Suggested Citation

Foster, Lucia and Grim, Cheryl and Haltiwanger, John C. and Wolf, Zoltan, Innovation, Productivity Dispersion, and Productivity Growth (March 2018). NBER Working Paper No. w24420. Available at SSRN: https://ssrn.com/abstract=3143345

Lucia Foster (Contact Author)

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

4700 Silver Hill Road
Washington, DC 20233
United States

Cheryl Grim

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

Suitland Federal Center
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

Zoltan Wolf

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

4700 Silver Hill Road
Washington, DC 20233
United States

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