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Innovative Growth Accounting

SIEPR
Apr 2020
Working Paper
20-016
By  Peter J. Klenow, Huiyu Li
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 0 to 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.