Micro-Heterogeneity and Aggregate Productivity Development in the German Manufacturing Sector

Transcription

1 Micro-Heterogeney and Aggregate Productivy Development in the German Manufacturing Sector Reult from a Decompoion Exercie by Uwe Cantner and Jen J. Krüger Friedrich-Schiller-Univery Jena June 2005 Department of Economic, Carl-Zei-Str. 3, D Jena, Germany, Tel.: , Fax: , uwe.cantner@wiwi.uni-jena.de, jen.krueger@wiwi.uni-jena.de DRAFT do not ce whout permiion of the author Abtract: In thi paper different formulae for the decompoion of aggregate productivy level and change are applied to a ample of German manufacturing firm that pertain to 11 different indutrie at a roughly two-dig level oberved over the period Productivy i meaured by a nonparametric frontier function approach. The decompoion of productivy allow for an explanation of the aggregate outcome by the quantification of the effect of tructural change a well a the contribution from entering and exing firm. Our reult how that thee force drive aggregate productivy dynamic to a coniderable extent. Epecially the period after the German reunification i characterized by large productivy improvement, mainly driven by tructural change. JEL claification: D24, O12, L60 Keyword: productivy, tructural change, manufacturing

2 1. Introduction The aggregate productivy development of indutrie or ector i an artificial contruct that i fuelled by the productivy development of the individual firm that make up thee indutrie or ector. The productivy of the individual firm develop not in a uniform way, but i characterized by a lot of turbulence. Thi turbulence how up in the differential rate of growth and decline of productivy, employment and ale. Moreover, turbulence i alo aociated wh the amount of entry into and ex from a particular indutry or ector. All thee factor hape the rate of change of aggregate productivy. That indutry evolution i indeed a very turbulent proce a i meanwhile well documented in the empirical reearch that i ummarized in the urvey article of Bartelman and Dom (2000), Cave (1998), Doi et al. (1997) and Haltiwanger (2000). In that work i recognized that the relation of turbulence at the firm-level and the rather mooth aggregate (indutry-level) outcome i very complicated. In the word of Doi et al. (1997, p. 12): "In general, what i particularly intriguing i the coexitence of turbulence and change on the one hand, wh peritence and regularie at different level of obervation from individual firm characteritic to indutrial aggregate on the other. Indutrial dynamic and evolution appear neher to be imply characterized by random diorder nor by perfectly elf-regulating, equilibrium procee that quickly wipe away difference acro firm. Rather, the evidence accumulated o far eem to ugget a ubtle and intricate blend of thee two element". Moreover, in related reearch wh a data bae imilar to that of thi paper we invetigate the dynamic propertie of productivy and market hare of firm and find that thee are que different and rather unrelated to each other (ee Cantner and Krüger (2004a,b,c)). However, if the market proce work ufficiently well, firm wh above-average productivy level or high productivy growth rate are expected to grow, firm wh belowaverage productivy level or low productivy growth rate are expected to hrink and more productive entering firm replace le productive exing firm. Exactly thi ha been decribed a the proce of creative detruction by Schumpeter (1942). In thi paper, we take an integrative approach to explain aggregate productivy level and change by combining productivy data at the firm level wh information on the hare of the firm in the total aggregate to quantify the contribution of different apect of thee heterogeneou dynamic 1

3 at the firm level. The decompoion of the productivy level how only minor contribution of tructural change to aggregate productivy level. In the cae of productivy change, the decompoion approach allow to quantify the contribution of tructural change, entry and ex to aggregate productivy growth in addion to productivy growth whin individual firm. Our reult how that the contribution of tructural change and net entry can explain an important part of aggregate productivy growth, epecially ince the German reunification. Thi reult hold if all firm are ampled together irrepective of their indutry of origin and alo if the firm are aigned to indutrie at the two-dig (SIC) level. Moreover, i demontrated that the component of the productivy decompoion that repreent tructural change have an illuminating interpretation in term of the replicator dynamic mechanim. The paper proceed a follow. Subequent to a brief lerature review in the next ection 2, the nonparametric method to compute total factor productivy i introduced in ection 3. Section 4 and 5 firt explain the decompoion formulae for the productivy level and change, repectively, and then turn to the dicuion of the correponding reult. Section 6 conclude. The appendix contain the reult wh ale hare ued for the aggregation intead of employment hare. 2. Related Lerature The reult reported in thi paper are related to three different trand of lerature: the theoretical lerature on indutry dynamic, the empirical lerature on market turbulence, and the methodological lerature on productivy decompoion. The theoretical lerature on indutry dynamic comprie a multude of model of competion whin indutrie in which firm are alo ubject to entry and ex. In neoclaical tradion, the model of Jovanovic (1982), Lambon (1991) and Ericon and Pake (1995) together wh the empirical validation of Pake and Ericon (1998) are exemplary. Thee model rely on prof maximizing firm that are eher endowed wh a time-invariant efficiency level or are able to improve their productivy level by invetment in reearch and development. Firm are alo ubject to random hock which may force them to ex. In evolutionary tradion, tarting wh Nelon and Winter (1982), indutry dynamic are imagined to be driven by firm that experiment wh different technologie and grow or hrink depending on their ucce relative to their competor, thu creating a highly uncertain and turbulent environment. Thee apect are 2

4 alo preent in the more recent evolutionary model of Metcalfe (1994, 1998) and Winter et al. (2000, 2003). Simultaneouly wh the theoretical lerature, empirical work developed exploring the pattern of plant entry, growth and ex in four-dig US manufacturing indutrie (ee Dunne et al. (1988, 1989)) and alo among UK manufacturing etablihment (Diney et al. (2003a)). Other work uch a Nickell (1996) and Nickell et al. (1997) concentrate on the generation of firm level evidence on the poive relation of product market competion and total factor productivy growth. Thee reult are thoroughly urveyed by Cave (1998) and by Bartelman and Dom (2000) wh pecial focu on the relation to productivy. For the invetigation of the relation of market turbulence and technological (i.e. productivy) change, decompoion of productivy meaure into everal component that hed light on the ource of aggregate productivy change at the micro-level and therefore provide an explanation for aggregate productivy change have been developed. Thee decompoion formulae allow in particular for the eparation of the contribution of tructural change and firm entry and ex to aggregate productivy development from the contribution of whinfirm productivy growth. Since the beginning of the 1990 thoe decompoion formulae have been propoed by Baily et al. (1992, 1996) and Foter et al. (1998) together wh application to productivy change of US manufacturing etablihment. Diney et al. (2003b) provide related reult for UK manufacturing etablihment. A notable and to date unnoticed precuror for the development of productivy decompoion i Salter (1960). 1 Beide the decompoion of productivy change, a pecial decompoion formula for productivy level ha been propoed by Olley and Pake (1996). The lerature on thee decompoion of aggregate productivy growth i ummarized by Haltiwanger (2000). 3. Productivy Meaurement To quantify total factor productivy the nonparametric frontier function approach i ued. The pecific method ued here i the Anderen-Peteren variant of data envelopment analyi (ee Anderen and Peteren (1993)). Thi i a nonparametric method that calculate an index of total factor productivy by the ditance of the input-output combination of a ample of n 1 See Salter (1960, pp. 184ff.) for the derivation of hi decompoion and hi chapter XI and XIII for the application to UK and US indutry data, repectively. 3

5 firm to a piece-wie linear frontier production function that i determined from quanty data alone whout requiring any aumption about the functional form of the production relationhip and whout having to rely on price data. The Anderen-Peteren model calculate productivy by computing an index that indicate to which level the output of a firm ha to be increaed in order to reach a point on the frontier production function that i determined by the obervation of the other n 1 firm that pertain to the ame indutry, excluding the firm for which productivy i actually computed. The productivy computation are performed for each indutry and time period t eparately. Letting y denote the output of the h out of n firm in the indutry under conideration and x the vector of the three input factor (labor, capal, material) of the ame firm, then the productivy core of firm i in period t i computed a the olution of the following linear program max θ : θy θ, λ i λ h h {1,..., n}/ i y ht, λ h h {1,..., n}/ i x ht x, λ i 0, where λ i denote the vector of weight omting the h component. Note that the um in the formula are over all but the h obervation which in effect exclude the h firm from the technology et. The olution of thi linear program i denoted a θ and quantifie how much the output of the h firm in period t ha to be increaed in order to reach a facet of the frontier function which i panned by the obervation for the other firm in period t. In the cae of the all-time bet frontier function ued in thi paper thi procedure ha to be modified o that θ i computed by comparing the obervation of firm i in period t wh all other firm whin the ame indutry in all other period (again except firm i in period t). Anyway, larger value of θ imply lower productivy level and therefore the invere i ued a the productivy meaure ubequently, denoted a interpreted a relative toward the all-time bet frontier function. a = 1/ θ. Thee are alway to be The ample ued to compute the productivy level i compoed of German quoted manufacturing firm wh obervation for the year 1981 to 1998 (or a certain part of that time pan in the cae of entering and exing firm). Overall 874 firm are part of thi ample 4

6 at any time. Thee firm can be aigned to 11 indutrie at roughly two-dig (SIC) level of aggregation. Table 1 how the data coverage by a liting of indutrie their two-dig SIC code and the minimum and maximum number of firm in the repective indutry in any year the lat two column. Table 1 Indutry Compoion of the Sample Indutry SIC2 Shortcut Min. # Firm Max. # Firm Contruction 15, 16, 17 Contruction Food and Beverage 20, 21 Food Textile and Apparel 22, 23 Textile Paper and Printing 26, 27 Paper Chemical and Petroleum 28, 29 Chemical Rubber and Platic 30 Rubber Metal Product 33, 34 Metal Machinery and Equipment 35 Machinery Electronic 36 Electronic Tranportation Equipment 37 Tranportation Intrument 38 Intrument The data we ue are all obtained from the balance heet and the annual report of the firm, compiled from the Hoppentedt data bae. For the determination of the productivy core we ue a model wh a ingle output variable and the input factor labor, capal and material. Labor i meaured by number of employee, capal input i meaured by the book value of firm' aet from the balance heet and material are taken from the gain-and-lo poion raw material and upply. For the output the um of total ale, inventory change and internally ued firm ervice from the prof and lo account i computed. The data for total ale and the number of employee are alo ued to compute the firm' ale or labor hare. The productivy computation are baed on real data for output a well a capal and material input. Therefore the price deflator of the GDP from the national account ha been ued to deflate the output and material data and an invetment deflator i applied to the capal input data. In future work i planned to ue indutry-pecific deflator. 5

7 4. Decompoion of Productivy Level Olley and Pake (1996) propoe a formula to decompoe the hare-weighted average indutry productivy in period t, a 1 n t = Σ i = a, where a denote the productivy level of firm i in period t and the repective market hare (in total indutry ale or employment): a t = a t + n i= 1 ( )( a a ). t t Thi formula expree the hare-weighted average indutry productivy in period t a the um of the equal-weighted average productivy n at n 1 Σ i = 1 = a and a term that can be interpreted a a kind of ample covariance between productivy and the ale or employment hare. Thi covariance term i poive if firm wh above-average productivy level tend to have above-average hare and firm wh below-average productivy level alo tend to have below-average hare (by contruction the average of the hare i 1 t = n for all t). Converely, if mall firm wh below-average hare tend to have above-average productivy level thi i indicated by a negative covariance term. Given a relation of hare dynamic to differential productivy level in the fahion of the replicator dynamic mechanim exit, the covariance term allow to gain inight about the force of thi mechanim. Accordingly, a large poive covariance term can be interpreted a an indication of market hare moving to the more productive firm in the indutry a a reult of the election by replicator dynamic. In thi cae the covariance term i related to the effect of reallocation of market hare from below-average productivy firm to above-average productivy firm in the repective indutry. A difference to the uual repreentation of replicator dynamic, however, i that the average productivy ued here i equal-weighted and not hare-weighted. It will be een below in the decompoion of aggregate productivy change that there alo a term appear that can be related to replicator dynamic, but there wh the hare-weighted average productivy a the benchmark. 6

8 Figure 1 Olley-Pake Decompoion (employment hare) Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument 7

9 Figure 1 how the reult for the total ample of firm a well a for all individual indutrie during the whole ample period Here, employment hare are ued a aggregation weight ince they have the advantage of being more robut to hort-run fluctuation than ale hare. In the lerature on Gibrat law employment i alo frequently ued to meaure firm ize (ee Evan (1987a,b) and Hall (1987) for leading example). But employment hare obviouly have the diadvantage of being affected by the tendency toward mechanization to the extent that thi i uneven acro the firm in an indutry. The hare-weighted aggregate productivy level are depicted by the olid line which in general develop rather moothly around a lightly increaing trend. Thee line are cloely tracked by the dahed line, repreenting the equal-weighted aggregate productivy level. Thi leave only a minor role for the effect repreented by the covariance term which indeed fluctuate around the zero level a hown by the dotted line. There are ome exception from that rule but thee are only relevant in ome indutrie and only for a few year. Uing ale hare intead of employment hare doe not change thi concluion in any relevant repect (ee the appendix for the analogou reult wh ale hare). A a conequence, if the replicator mechanim work at all, eem to be of minor importance quantatively if we look at the magnude of the covariance term from year to year. The mooth development of the aggregate productivy level (regardle of the weighting cheme) implie that productivy change tracked over ubtantial period of time hould be more promiing. Therefore, the effect that are expected from the replicator dynamic mechanim are likely to be obervable only over longer period of time. In addion, intead of conidering aggregate level of productivy might be worth while looking at aggregate productivy change through the len of another decompoion. Thi i done in the next ection which turn to the application of another decompoion formula that i ued to decompoe aggregate productivy growth into five different component. 5. Decompoion of Productivy Change Productivy change i here decompoed uing the formula propoed in Foter et al. (1998) which i a modification of the formula of Baily et al. (1992) that alo account for the contribution of entering and exing firm. Thi formula i here preferred to the alternative 8

10 decompoion formula of Griliche and Regev (1995), which i deemed to be more robut to meaurement error but i traightforward to interpret. Denote the hare-weighted aggregate n productivy level of period t and t k ( k > 0 ) by a n t = Σ i = 1 a and at k = Σ i= 1 k a k, repectively. Then the average change of hare-weighted aggregate productivy can be denoted by a t = a a = Σ a Σ t t k i C N i C X k a k, where C denote the et of continuing firm, N denote the et of entering firm and X denote the et of exing firm. Clearly, thee et are dijoint and C N X = { 1,..., n}, taking account of the fact that = 0 (and a = 0 ) in the cae of the entering and = 0 (and a = 0 ) in the cae of the k k exing firm. Wh thi notation the annual percentage average growth rate of the hare-weighted aggregate productivy over the period t to expreion can be decompoed into t k can be wrten a 100 a a. The part k t t k a t of thi a t = i C k a + i C ( a k a t k ) + a + i C i N ( a a t k ) i X k ( a k a t k ), where a and are undertood to denote a a k and k, repectively. The interpretation of thi formula i traightforward: for the continuing firm, the growth rate of hare-weighted average indutry productivy i expreed a the um of the hare-weighted productivy change whin indutrie (the whin component), the hare cro term which i poive if firm wh above-average productivy increae their hare (the between component) and a covariance-type term which i poive if firm wh increaing productivy tend to gain in term of their hare (the covariance component). The latter two term ummarize the effect of the tructural change on aggregate productivy growth among the continuing firm of the indutry under conideration. In the final two term of the formula the contribution of the entering and the exing firm to aggregate productivy growth are tated. They are called the entry and ex component in the following. The contribution of an entering firm to aggregate productivy change i poive if ha a productivy level above the inial average and the contribution of an exing firm to aggregate productivy growth i poive if productivy level i below the inial average. 9

11 The entry and ex effect ummarize thee contribution, weighted by in the cae of the entry component and by 1 in the cae of the ex component. Particularly appealing from an evolutionary point of view i that the between component i poive if the hare development follow a dicrete-time verion of the familiar replicator dynamic mechanim. In that cae above-average productivy level in period be aociated wh poive hare growth between period t and t k tend to t k and below-average productivy level tend to be aociated wh negative hare growth. On the other hand, if below-average productivy firm tend to grow in term of hare and above-average productivy firm tend to hrink in term of hare the between component will be negative, thereby contradicting the replicator mechanim. Admtedly, in a heterogeneou ample of firm thi mechanim will be confirmed by a certain part of the ample and contradicted by another part of the ample and poive and negative contribution may cancel out to ome extent. Thu one ha to bear in mind in the interpretation of the between component that a poive between component may jut be the reult of an overweight of the firm wh poive contribution over the firm wh negative contribution. Related to that a poive covariance component indicate that election i fater than predicted by the replicator dynamic mechanim alone, while a negative covariance component i aociated wh a lower election compared to the replicator dynamic mechanim. Both between and covariance component can be added reulting in the combined component Σ ( a a ), which i ditinguihed from the dicrete-time i C t k replicator dynamic mechanim by the fact that the productivy level of period t are compared wh the average productivy level of period t k. Turning to the reult on table 2 the average percentage growth rate of the aggregate productivy level during , again wh employment hare ued a weighting factor, i reported together wh the five term of the decompoion formula. It hould be treed that only in the long-run the component other than the whin component how up wh coniderable magnude, o that time pan of everal year are neceary to achieve meaningful reult. Note that each ingle term of the above tated decompoion formula for a t appear in the table a divided by 100 at k and multiplied by k. 10

12 Table 2 Foter-Haltiwanger-Krizan Decompoion (employment hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). Firt of all, the reult how a poive aggregate productivy development for the total ample a well a for mot indutrie conidered (the ole exception being contruction). A certain part of thi outcome can be attributed to productivy growth whin the indutrie a i evident from the poive whin component. Concerning the effect of entry we oberve that entering firm are more productive than the average of the tarting period wh the exception of food and rubber (uing the indutry hortcut defined in table 1 above). Exing firm tend to have below-average productivy level in the total ample and in five individual indutrie, thu contributing poively to aggregate productivy growth. In the remaining ix indutrie, exing firm contribute negatively to aggregate productivy growth. Generally, net entry provide a poive contribution, except for rubber. Thu, on average more productive entering firm replace le productive exing firm. Structural change take place not only in form of entry and ex of firm, but i alo important whin the group of continuing firm. Thi how up in the between and covariance component that relate employment hare change eher to the deviation from the average 11

13 productivy level or to productivy change. Suppoing a poive relation of the number of employee of a firm to ize, thee two effect reflect the inteny of competion whin an indutry driven by micro-heterogeney in productivy level and growth. For the between component we generally oberve poive effect (except for food). Thi indicate a development pattern a can be expected to be generated by the replicator dynamic mechanim which potulate that firm wh above-average productivy level tend to grow in term of hare and vice vera. The actual trength can be een from the relative contribution of the between component to aggregate productivy change. Thi contribution i rather low in mot indutrie except chemical, electronic and tranportation. Thi between component can be enforced or weakened by the covariance component. For the total ample the poive but mall between component i reinforced by a covariance component that i poive and of a coniderable magnude. Thu, productivy growth (or decline) of the individual firm in the total ample tend to be aociated wh hare growth (or decline). The election repreented by a poive between effect i accelerated in a imilar fahion by a poive covariance component in cae of chemical, rubber, machinery, tranportation and intrument. In mot of thee cae the covariance component repreent a quantatively important contribution to aggregate productivy growth (except for tranportation). In contruction, textile, paper, metal and electronic the covariance component i negative and therefore reduce or even outweigh the poive between component. A hown in table 5 in the appendix, the between component become negative in a larger number of indutrie if ale hare are ued for the aggregation intead of employment hare. The other reult are analogou to thoe dicued here. The combined effect of the between component and the covariance component are characteritic for the tructural development of an indutry. If both component are poive, the heterogeney of firm wh repect to both productivy differential and ize differential i increaing. Eventually, a bimodal tructure emerge a a reult of the working of replicator dynamic and reinforcement effect between market hare change and productivy change (a a kind of poive dynamic economie of cale). In the cae of a poive between component, a negative covariance component and a poive combined effect repreent a replicator dynamic effect which, however, i damped by a negative feedback between change in productivy and employment hare. If the combination of the between and the covariance term i negative, replicator dynamic effect do not how up a expected but are 12

14 uperimpoed by a tendency toward a more homogeneou tructure of firm a a kind of negative dynamic economie of cale. Relating thee reult to reult found in previou work of Cantner and Krüger (2004a,b,c) for example for the chemical and rubber how that not only a rather imple ucce-breed-ucce dynamic wh repect to productivy leaderhip how up. In addion a coupled ucce-breed-ucce proce i detected where economic and technological ucce reinforce each other (ee ep. Cantner and Krüger (2004c)). The jut dicued reult for the total ample of German manufacturing firm are que imilar to that of tudie for US manufacturing etablihment which are uccinctly urveyed by Bartelman and Dom (2000) and Haltiwanger (2000). In mot of thee tudie etablihment are ampled together irrepective of the indutry of origin. Although the reult vary coniderably acro time period, data frequency, the pecification of the hare in term of labor or output, and the choice of labor productivy or total factor productivy, the whin component uually repreent the larget contribution to aggregate productivy growth. The between component i ometime found to be que mall in abolute magnude, while the covariance component i frequently poive and of coniderable magnude. Net entry contribute poively to aggregate productivy growth. An analogou invetigation of UK manufacturing etablihment by Diney et al. (2003b) reache qualatively the ame reult. Dividing the ample period into two part, one before the German reunification ( ) and the other after the German reunification ( ), reveal ome intereting development. Comparion of table 3 and 4 below reveal that aggregate productivy growth i much tronger for the total ample and in mot indutrie in the period ince the reunification compared to the period before (wh the ole exception of the tranportation equipment indutry). 13

15 Table 3 Foter-Haltiwanger-Krizan Decompoion (employment hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). To a large extent thee productivy improvement ince 1990 can be explained by the component of the productivy decompoion that are related to tructural change eher in the form of election among continuing firm (the between and covariance component) or in the form of entry and ex (the entry and ex component). Thee component play a much larger role after the German reunification than they did before. Only in the cae of contruction and of food i the whin component dominating. The covariance component i poive in all indutrie but contruction and textile, and often large in magnude. In all other indutrie the whin component deviate ubtantially from the aggregate productivy change, leaving a large role for the productivy improving force of tructural change. The ame hold for the total ample. Thu, the widepread acceleration of productivy ince 1990 i mainly driven by the exceptional growth of firm wh above-average productivy level which are alo growing in term of productivy and by the entry of firm wh above-average productivy level combined wh the ex of firm wh below-average productivy level. Again, the ame pattern can be dicerned from the reult in the appendix when the ale hare are ued. 14

16 Table 4 Foter-Haltiwanger-Krizan Decompoion (employment hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). In um, the reult reported in thi ection how that the contribution tructural change and net entry can explain an important part of aggregate productivy growth. Thi outcome appear to be much weaker before the German reunification and appear to be particularly pronounced in the period ince that event. The general pattern of reult hold for the whole ample in which all firm are ampled together irrepective of their indutry of origin. It alo hold in mot cae if the firm are aigned to indutrie at the two-dig (SIC) level. By that, upport for the replicator dynamic mechanim can be given, although we have to be cautiou at the preent tage of our analyi. Importantly, the overall pattern of reult i rather robut to the pecification of the hare in term of employment or ale. 6. Concluion The analyi performed in thi paper i concerned wh aggregate productivy development of ector and the underlying heterogeneou micro-dynamic at the firm level. Our finding 15

17 upport the rather general and tylized obervation of rather mooth development at the aggregate level a the reult of que turbulent micro-dynamic that i dicued in Doi et al. (1997) and ha been quoted in the introduction. Wh our approach we are able to decompoe aggregate productivy development into everal component that allow to detect ome intereting regularie for the firm of the German manufacturing ector during the period The main reult can be ummarized a follow. Firt, we find that whin firm productivy growth account for much of the performance at the aggregate level, epecially in the period before the German reunification. Second, we alo find that entering firm tend to have productivy level above the average, wherea exing firm are mainly characterized by productivy level below the average. Both reult confirm the reult of other tudie for US and UK manufacturing etablihment. Third and mot important, in the period ince the German reunification we can identify the impact of uccebreed-ucce dynamic coupling economic and technological improvement for the majory of ector. The accompanying tructural change can explain a non-negligible part of the aggregate productivy performance and can be interpreted in term of the replicator dynamic mechanim, where well performing firm (in term of productivy) are elected in favor of badly performing firm. Our reult give an indication of the force of tructural change that together wh entry-ex dynamic eem to hape a ubtantial part of aggregate productivy development and are much more difficult to uncover by an invetigation of hort-run (yearby-year) change. Thereby, we extend the reult of our previou work by howing a link of the technological development of firm (repreented by productivy change) and their economic ucce in form of increaing hare in indutry employment or ale. 16

18 Appendix: Reult for ale hare Figure 2 Olley-Pake Decompoion (ale hare) Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument

19 Table 5 Foter-Haltiwanger-Krizan Decompoion (ale hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). 18

20 Table 6 Foter-Haltiwanger-Krizan Decompoion (ale hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). 19

21 Table 7 Foter-Haltiwanger-Krizan Decompoion (ale hare) Change Whin Between Cov. Entry Ex Total Sample Contruction Food and Beverage Textile and Apparel Paper and Printing Chemical and Petroleum Rubber and Platic Metal Product Machinery and Equipment Electronic Tranportation Equipment Intrument Note: reported are average percentage growth rate of the aggregate productivy level in the column change and the term of the decompoion formula in the ubequent column, each divided by the inial hareweighted average productivy level and multiplied by 100/( ). 20

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