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Approaches to estimate the firm contributions to aggregate productivity
This research estimates the contribution to productivity growth in Australia in the period 2002 – 2013 of:
· firms within industries and
· firms between industries.
Chart 1 shows that, in general, firm exit contributes positively to productivity growth, whereas firm entry contributes negatively. The two approaches provide similar results but the approach of Melitz and Polanec (2015) uses appropriate benchmarks for calculating the contributions from the entering and exiting firms.
Chart 1 Comparison of decomposition approaches
Instrumental variable, preconditioned conjugate gradient and grouping algorithms
This research applies an instrumental variable regression to reduce the bias in estimating firm productivity. We derive the instrumental variable from an experimental linked dataset of 10 million workers across 1.5 million firms. It is not feasible to perform calculations on a matrix with 130 million rows and 11.5 million columns. Therefore, we use a preconditioned conjugate gradient algorithm to solve a large sparse matrix and a grouping algorithm to identify unique solutions.
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13220.127.116.11 - Research Paper: Approaches to Analysing Micro-Drivers of Aggregate Productivity, March 2019
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