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Dynamic Olley‐Pakes productivity decomposition with entry and exit
Author(s) -
Melitz Marc J.,
Polanec Sašo
Publication year - 2015
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12088
Subject(s) - productivity , decomposition , aggregate (composite) , econometrics , contrast (vision) , economics , computer science , macroeconomics , materials science , artificial intelligence , composite material , chemistry , organic chemistry
We propose an extension of the Olley and Pakes ([Olley, S., 1996]) productivity decomposition that accounts for the contributions of surviving, entering, and exiting firms to aggregate productivity changes. We argue that the other decompositions that break down aggregate productivity changes into similar components introduce some biases in the measurement of the contributions of entry and exit. We apply our proposed decomposition to Slovenian manufacturing data and contrast our results with those of other decompositions. We find that, over a five‐year period, the measurement bias associated with entry and exit is substantial, accounting for up to 10 percentage points of aggregate productivity growth.