2008/20 | LEM Working Paper Series | |
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Growth processes of Italian manufacturing firms |
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Alex Coad, Rekha Rao, Federico Tamagni |
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Keywords | ||
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Firm Growth, Panel VAR, Employment Growth, Industrial Dynamics, Productivity Growth
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JEL Classifications | ||
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C30, D20, L25, L20
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Abstract | ||
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This paper presents a multidimensional empirical analysis of firm
growth. Exploiting census data on Italian manufacturing firms,
1989-1997, we estimate a reduced-form VAR to analyze the
co-evolution of employment growth, sales growth, growth of profits
and labour productivity growth. Our main findings suggest that (i)
employment growth precedes sales growth; (ii) productivity growth
lacks any strong association with subsequent growth of the other
indicators; (iii) profits growth represents the `absorbing
dimension' of the growth processes. This picture contrasts with
'accelerator models', predicting sales are the driver of the growth
process, and is also at odds with theories of firm-industry
evolution assuming productivity or profits advantages to be the
driver of strong market selection/reallocation mechanisms. Instead,
the findings reveal the existence of (weak) Penrose and (strong)
Kaldor-Verdoorn effects, and more generally convey the view that
employment growth is the key driver of firm expansion, while
profits, once made, are not reinvested.
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