Frontier and laggard firms: will there be significant changes to the distribution of productivity post-Covid-19?

Abstract

In recent years the OECD and other commentators have stressed the importance, in explaining the productivity problem in many countries, of the prevalence of firms that operate at the (regional, national and international) ‘frontier’ of technology (i.e., those with the highest levels of productivity), together with whether diffusion and/or reallocation of output shares across firms is optimal. There is a general concern that many regional (national) frontier firms are disconnected from the national (international) frontier, laggard firms tend not to catch up to the national frontier, and resources are stuck in a tail of small and unproductive firms; hence, a large share of employment and capital is concentrated in firms with low productivity: i.e., there are too many small, old and relatively unproductive firms that neither grow rapidly nor exit the market. Diffusion from the global to the national frontier requires a sufficient level of innovativeness, global connections via trade, FDI, participation in global value chains and the international mobility of skilled labour - all of which are likely to be under pressure due to COVID19. This chapter will consider how predicted trends due to the pandemic - such as, the adoption of new e-commerce, digital payments and remote working technologies; how reconfigurations of (global) supply chains; how the likely change in competition (as industrial concentration through M & A will increase) - will affect the productivity distribution both positively and negatively. Looking in particular at how the 2008-09 recession impacted on these factors, and predicting likely changes due to COVID19, will be the main empirical approach used.