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Sector Switching: An Unexplored Dimension of Firm Dynamics in Developing Countries

Carol Newman, John Rand and Finn Tarp

Abstract

Much of the literature on industry evolution has found firm dynamics to be an important source of sector-level productivity growth. In this paper, we ask whether the delineation of entry and exit firms matters in assessing the impact of firm turnover. Using detailed firm level data from Vietnam, it emerges that efficiency differences between sector switchers and exit/entry firms exist. Distinguishing between switchers and firm entry/exit is crucial for understanding the contribution of firm turnover to overall productivity growth. Moreover, we uncover distinct and illuminating firm and sector-level determinants of firm exit and switching, which need to be carefully considered in the search for effective policy.

JEL :

D21, L6, O14

Key Words:

Firm dynamics, sector switching, efficiency, Vietnam


Last updated 28 August 2014 by IIIS (Email).