Firm dispersion and total factor productivity: Are Norwegian salmon producers less efficient over time?

Abstract

The Norwegian salmon farming sector has experienced an increase in industry concentration for the last 20 years attributed to agglomeration externalities and scale economies; big firms increase their size and market share while small firms remain operating at the minimum level. However, small firms have higher profitability ratios than their bigger counterparts, a fact that contradicts economic theory as less efficient firms (and less profitable) will not grow and eventually will disappear. This paper quantifies the role of idiosyncratic demand and distortions on observed productivity differences across Norwegian salmon producers from 2001 to 2016. By using a data set that measures directly firm-level quantities, prices and sales, it is possible to break down the sources of total factor productivity dispersion on technical inefficiency and firm fundamentals. The understanding of total factor productivity (TFP) dispersion is useful as micro-productivity changes can point out aggregate productivity movements that matter on industrial and macroeconomic policies.