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Toward a Model of Firm Productivity Dynamics - WP 06/11

Publication Details

  • Toward a Model of Firm Productivity Dynamics
  • Published: Nov 2006
  • Status: Current
  • Authors: Buckle, Bob (Robert) A; Hyslop, Dean; Law, David
  • JEL Classification: D21; L00; O12
  • Hard copy: Available in HTML and PDF formats only.

Toward a Model of Firm Productivity Dynamics

New Zealand Treasury Working Paper 06/11

Published November 2006

Authors: David Law, Bob Buckle and Dean Hyslop


A common finding from international research on firm productivity dynamics is that within-firm productivity dynamics tend to dominate the effects of firm entry and exit on aggregate productivity. The aim of this paper is to explore the suitability of Statistics New Zealand’s Business Demography (BD) and Goods and Services Tax (GST) data as a basis for modelling within-firm productivity dynamics. The paper first analyses and describes the cross-sectional and time-series properties of sales, purchases and a value-added measure of labour productivity. Cross-sectional results reveal a great deal of heterogeneity in average sales, purchases and labour productivity both across and within industries and cohorts. Univariate time-series properties of these variables are remarkably similar and sales and purchases are highly correlated contemporaneously. Transition probabilities are also calculated for movement of firms between quartiles of the labour productivity distribution over varying lengths of time. In order to understand the processes driving the data, a simple statistical model for sales, purchases and value-added per unit of employment is developed to calibrate to the stylised empirical facts. The model does a remarkably good job at mimicking the properties of the BD and GST data.


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Table of Contents

List of Tables

List of Figures

1  Introduction

2  Background and data

  • 2.1  Description of source data
  • 2.2  Dealing with missing data
  • 2.3  Weighting
  • 2.4  Other Issues

3  Summary statistics

  • 3.1  Aggregate and industries
  • 3.2  Cohorts
  • 3.3  Association between labour productivity and its components

4  Time-series properties and transition rates

  • 4.1  Autocorrelations
  • 4.2  Quartile transitions

5  Modelling

  • 5.1  The model
  • 5.2  Results

6  Concluding discussion



twp06-11.pdf (235 KB) pp. 1–31

List of Tables

List of Figures


We thank Richard Fabling, Mario Di Maio, Dave Maré, seminar participants at The Treasury and participants at the 2006 Conference of the NZ Association of Economists for comments and discussions. We are grateful to Preeti for her capable assistance with data compilation. Access to the data used in this study was provided by Statistics New Zealand in a secure environment designed to give effect to the confidentiality provisions of the Statistics Act, 1975. The views, opinions, findings and conclusions or recommendations expressed in this document are strictly those of the authors, and do not necessarily represent and should not be reported as those of The Treasury or Statistics New Zealand.


The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury. The Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

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