Firm Dynamics and Australia''s Productivity Growth

Australia turned in an impressive productivity performance in the 1990s, but this big picture masked uneven firm performances and considerable dynamics (expansion, contraction, entry and exit). This study takes into account firms'' heterogeneity, input choices and exit decisions in deriving productivity measures. It then assesses the relative contribution of intra-firm productivity changes and inter-firm share reallocation via firm dynamics to total factor productivity growth across 25 manufacturing and services industries in Australia. The use of microdata and the application of research methods new to Australian data have helped to shed new light on Australia''s productivity performance. The study highlights the significance of firm dynamics in driving Australian industries'' productivity growth and points to the importance of a policy environment that facilitates the entry and exit of firms in improving resource allocation.