Does Schumpeterian Creative Destruction Lead to Higher Productivity Evidence on Entry and E.pdf

2003 International Comparative Analysis of Enterprise (micro) Data Conference (CAED) Cass Business School, City of London 15-16 September 2003 Does Schumpeterian Creative Destruction Lead to Higher Productivity? Evidence on Entry and Exit in Portuguese Manufacturing Carlos Carreira and Paulino Teixeira Faculdade de Economia da Universidade de Coimbra Av. Dias da Silva, 165 3004-512 Coimbra, Portugal Corresponding author: Carlos Carreira Tel: +351-239790545; Fax: + 351-239-790514; e-mail: ccarreir@fe.uc.pt. May 2003 This study examines the firm dynamics (namely the entry and exit of firms) and their contribution to industry productivity growth. We used an original and statistically representative unbalanced panel of Portuguese manufacturing firms (1991-2000). As expected, the entry and exit rates were very substantial. The entry market shares of newly created firms were very small but new firms did tend to show strong market share growth rates. Entrants were less productive than incumbents, but the differences in productivity tended to vanish very quickly. Exitors were shown to be less productive than entrants. Our decomposition of the sources of productivity growth showed that a large percentage of industry-level productivity growth could be imputed to firm dynamics. Keywords: Entry and Exit; Creative Destruction, Productivity Growth; Industrial Dynamics. JEL - code(s): D21, D24, L60, O40, O47. 1 1 Introduction Productivity growth patterns have been widely discussed in the literature at both aggregate (macroeconomic)- and industry-level. But growth takes place in individual firms/establishments. Understanding resource reallocation at the micro level, and its relationship with industry productivity growth, are thus crucial in designing new industrial policies. Our main concern is the study of firm dynamics (namely the entry and exit of firms) and their contribution to industry productivity growth. We will