Physical productivity of new firms: it is not as high as it appears

Xuebing Yang, Lili Chen

Research output: Contribution to journalArticle

Abstract

This paper argues that the physical productivity of new firms is not as high as it is measured with conventional approaches. The overestimation is due to two reasons, both of which are related to the underestimation of production inputs of new firms. On the extensive margin, while conventional approaches implicitly assume the share of production costs in the total costs is the same for all firms, new firms spend a larger share of their costs on production. On the intensive margin, conventional approaches usually use capital stock as the proxy for capital input and tacitly assume a constant ratio between capital service and capital stock, whereas new firms tend to use their capital more intensively. Failure to incorporate the two facts leads to economically significant inflation in the measured physical productivity of new firms.

Original languageEnglish (US)
Pages (from-to)4397-4410
Number of pages14
JournalApplied Economics
Volume51
Issue number40
DOIs
StatePublished - Aug 27 2019

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New firms
Productivity
Costs
Capital stock
Extensive margin
Capital ratios
Intensive margin
Cost of production
Capital input
Inflation

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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Physical productivity of new firms : it is not as high as it appears. / Yang, Xuebing; Chen, Lili.

In: Applied Economics, Vol. 51, No. 40, 27.08.2019, p. 4397-4410.

Research output: Contribution to journalArticle

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