Three Essays on the Role of Productivity in Firm Dynamics

Filip Jolevski

Advisor: Tyler Cowen, PhD, Department of Economics

Committee Members: Noel Johnson, Tim Groseclose

Carow Hall, #1
June 03, 2024, 10:00 AM to 12:00 PM

Abstract:

This dissertation explores the significance of productivity in shaping firm dynamics. It illustrates how productivity affects the likelihood to survive the COVID-19 pandemic, the performance of businesses that survived during the pandemic, and how productivity is affected by lack of credit in the informal sector. The contribution of this study is to further enhance the understand of the factors that affect firm dynamics.

The first essay investigates how the COVID-19 pandemic has impacted less productive firms, observing a Schumpeterian cleansing effect. Utilizing data from 34 economies, the study finds that less productive firms are more likely to permanently close during the crisis. Moreover, it uncovers negative relationships between firm exit, digital presence, and innovation, particularly among small firms. The study also reveals that a burdensome business environment exacerbates the probability of firm exit, especially for small firms, and that insolvency moratoriums disrupt the cleansing process.

In the second essay, the focus shifts to examining the sales decline gap between small and medium-sized enterprises (SMEs) and large firms in developing countries post-COVID-19 outbreak. SMEs experienced 12.2 percent larger sales decline relative to large firms. Using Kitagawa-Oaxaca-Blinder and quantile decomposition methods, the findings indicate that lower initial labor productivity and greater input supply disruptions of SMEs widen the sales gap. The gap is larger at the relatively high quantiles of sales decline distribution, indicating that relative to large firms, SMEs were much less resilient to large shocks than small shocks. The analysis underscores disparities in resilience across different levels of sales decline distribution.

The third essay delves into the relationship between access to finance and labor productivity in the informal sector. It reveals a substantial productivity gap between credit-constrained and unconstrained firms. The results are robust using various tests. Gender heterogeneity is present in the findings, highlighting the need for nuanced policy considerations to enhance productivity in the informal sector.