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Firm Dynamics and Sectoral Reallocation (joint work with Hugo Hopenhayn and Rish Singhania)
October 1, 12:45 pm - 2:00 pm
Julian Neira
(University of Exeter)
“Firm Dynamics and Sectoral Reallocation (joint work with Hugo Hopenhayn and Rish Singhania)”
Abstract:
The US economy has experienced declining business dynamism alongside substantial sectoral reallocation. To jointly investigate these phenomena, we develop a framework that features endogenous firm entry and exit in a multisector economy with input-output linkages. We provide conditions under which prices fully offset the impact of aggregate and sectoral shocks on firm values, implying invariance of exit rates by firm age. Firm life cycle profiles of exit and average size generate dynamic sectoral linkages which imply rich transitional effects. We apply the framework to study US manufacturing. Slowing population growth, sectoral technological change, and rising international trade together generate the evolution of both manufacturing firm dynamics and reallocation. Technological change is primarily responsible for employment reallocation out of manufacturing, while international trade is central to the manufacturing firm share decline. Employment reallocation generates one-third of the manufacturing entry rate decline, on par with the long-run effect of slowing population growth.