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High Growth Firms and Productivity - Evidence from the United Kingdom

Nesta Working Paper 13/04
Issued: March 2013
JEL Classification: D24, L11, L25
Keywords:productivity, firm growth, high growth firms

Abstract

The concept of high growth firms (HGFs) has attracted considerable attention by governments and policy makers on the back of evidence that HGFs contribute significantly to employment and economic growth. However, the literature shows limited evidence on the link between HGFs and firm productivity. In this paper we investigate the empirical link between total factor productivity (TFP) growth and high growth phenomena (defined by turnover growth) in the United Kingdom over the period 2001-2010, by examining two related research questions. Firstly, does higher productivity growth lead to high growth incidence? Secondly, does high growth experience help firms to achieve faster TFP growth?

Our two-part analysis reveals that firms are more likely to become HGFs in revenue when they exhibit higher TFP growth, and that firms which have had high growth experience tend to enjoy faster TFP growth afterwards. By contrast, we find that higher productivity, measured in levels, is negatively associated with HGF incidence, while high growth experience leads to higher productivity levels. These results are robust to several model specifications and controlling for a number of sources of firm heterogeneity and regional economic conditions. Marked differences are identified in the determination and the implication of high growth phenomena between the manufacturing and the services sector.

Authors

Jun Du, Yundan Gong, Yama Temouri

The Nesta Working Paper Series is intended to make available early results of research undertaken or supported by Nesta and its partners in order to elicit comments and suggestions for revisions and to encourage discussion and further debate prior to publication (ISSN 2050-9820). The views expressed in this working paper are those of the author(s) and do not necessarily represent those of Nesta.