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Abstract:

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CEP Discussion Paper
The Best versus the Rest: Divergence across Firms During the Global Productivity Slowdown
Dan Andrews, Chiara Criscuolo and Peter N. Gal August 2019
Paper No' CEPDP1645:
Full Paper (pdf)

JEL Classification: O30; O40; M13


Tags: firm dynamics; regulation; knowledge diffusion; technological change; productivity

We document that labor productivity of the globally most productive firms – the “frontier” – has diverged from all other firms – the “rest” – throughout the 2000s. This divergence remains after controlling for capital intensity and markups, and is strongest in ICT services, indicative of “winnertakes-all” dynamics. We also find weakening catch-up and market selection below the frontier, which can explain why this divergence at the firm level is linked to weaker aggregate productivity. The divergence is found to be stronger in industries where product market regulations are less competition friendly, highlighting the need for regulatory policy to improve the contestability of markets.