Firm Turnover and Productivity Growth in Canadian Manufacturing and Services Industries, 2000 to 2007

Abstract

This paper examines the differences and similarities in the nature of the competitive process for a cross section of Canadian industries. It studies the intensity and the effectiveness of entry, the relationship between turnover within incumbents and the intensity of entry, and the failure process underlying the exit of entrants. Finally, it asks how differences in these processes relate to the contribution that turnover makes to productivity growth. Differences across industries both in the effectiveness of the entry process and the contribution of turnover to productivity growth are related to the conditions that permit entry at relatively large scale and regulatory conditions in the industry. Industries where entrants are capable of establishing a relatively large footprint are generally those where entrants capture more of the market, where there is more intense turnover among incumbents and where a larger proportion of productivity growth comes from turnover due to both entry and exit and changes in the market position of incumbents. Industries where regulation attenuates freedom of entry have a different though related profile. Even here, turnover contributes to productivity growth.