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Micro-heterogeneity and aggregate productivity development in the German manufacturing sector

Results from a decomposition exercise

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Abstract

A decomposition of aggregate productivity growth of German manufacturing firms that pertain to 11 different industries at a roughly two-digit level observed over the period 1981–1998 is performed. Productivity is measured by a nonparametric frontier function approach. The decompositions of productivity allow for an explanation of the aggregate outcomes by the quantification of the effect of structural change and the contributions of entering and exiting firms. Our results show that these forces drive aggregate productivity to a considerable extent. Remarkably, the large productivity improvements after the German reunification are mainly driven by structural change.

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Notes

  1. See Salter (1960, pp. 184ff.) for the derivation of his decomposition and his chapters XI and XIII for the application to UK and US industry data, respectively.

  2. Here, employment shares are used as aggregation weights, since they have the advantage of being more robust to short-run fluctuations than sales shares. In the literature on Gibrat’s law, employment is also frequently used to measure firm size (see Evans (1987a, b) and Hall (1987) for leading examples). Employment shares, however, obviously have the disadvantage of being affected by the tendency towards mechanization to the extent that this is uneven across the firms in an industry.

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Correspondence to Uwe Cantner.

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This paper has been produced within the Dynamics of Institutions and Markets in Europe (DIME) network of excellence. We gratefully acknowledge the financial support by the European Union. We are also grateful for the comments of participants of the workshop at the Fondation Les Treilles (June 2005), the workshop of the Brisbane Club at the University of Queensland (July 2005), the DIME workshop ‘Firm-level longitudinal data on economic performances and their determinants’ in Volterra (June 2006) and the 33rd European Association for Research in Industrial Economics conference in Amsterdam (August 2006) on a previous version of this paper. Of course, any remaining errors are ours.

Appendix

Appendix

Results for sales shares

Table 6 Firm size distribution with respect to real sales
Table 7 Decomposition 1981–1998 (sales shares)
Table 8 Decomposition 1981–1989 (sales shares)
Table 9 Decomposition 1990–1998 (sales shares)

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Cantner, U., Krüger, J.J. Micro-heterogeneity and aggregate productivity development in the German manufacturing sector. J Evol Econ 18, 119–133 (2008). https://doi.org/10.1007/s00191-007-0079-z

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