What is behind aggregate productivity growth in Ireland? A granular approach

Papa, Javier (2019): What is behind aggregate productivity growth in Ireland? A granular approach. Published in: Department of Business, Enterprise and Innovation - Research Paper Series (February 2019)

Abstract

This paper is aimed to empirically test for Ireland the “granular hypothesis” (Gabaix 2011), which posits that firm-level productivity shocks can explain a sizable portion of aggregate productivity fluctuations. The Irish case is particularly relevant as Ireland has been experiencing increasing economic concentration in recent years, to the point that micro shocks to a few selected firms in 2015 led to significant level shifts in aggregate variables like GDP (+34 per cent) and, particularly, labour productivity (+23 per cent) and total factor productivity (-12 per cent). Combining macro data from the CSO and the OECD with micro data from the Annual Business Survey of Economic Impact (ABSEI), the granular hypothesis is tested in Ireland for the period 2000-2016. Research findings confirm that productivity shocks to the 5 largest firms (in terms of value added) in Ireland account for a large fraction (about onethird) of aggregate productivity growth. These empirical results shed light on the origins of Irish productivity fluctuations, the consequences of economic concentration on resilience and the importance of diversification policies aimed at broadening Ireland’s enterprise base of productive firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Productivity, Granularity, Aggregate Fluctuations, Micro-Macro Shocks, Ireland
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe

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