Productivity, market selection and corporate growth across US and Europe

This paper analyses the patterns of market selection in manufacturing industries of France, Germany, UK, and USA. We first disentangle the contribution to industry-level productivity growth of within-firm productivity changes and between-firm reallocation of shares. The evidence corroborates the notion that within-firm learning prevails over market selection forces, with larger firms driving such innovation and learning processes. Second, we address the “strength” of selection by exploring to what extent firm growth rates are shaped by relative productivity levels as compared to variation thereof. Our key finding is that, although changes in relative efficiency have a greater impact on growth than relative efficiency levels, there is an overall weak relationship between productivity and growth and therefore a weak power of selection forces in all countries. The results hold across firms of different size, but we also find that selection bites more on SMEs.