What Drives Firm Growth? Comparing Factors of Intensive and Extensive Firm Growth

Abstract

This paper compares the determinants of firm’s extensive and intensive growth based on population data of manufacturing firms registered in Slovenia in the 1994-2003 period. The former is measured in terms of employment and the latter is defined in terms of total factor productivity. After controlling for possible endogeneity of explanatory variables and accounting for growth persistence a firm’s extensive growth is found to be stronger in younger and more productive firms, using more capital intensive technology and exporting larger share of their output. Intensive growth is also more pronounced in firms with more capital intensive but it is characterized with inverted U-shaped relationship with its size. However, significant differences among the factors of intensive and extensive firm growth are revealed, especially with respect to industry-specific factors. The industry-level markup size and intra-industry concentration of foreign firms affect significantly only the intensive firm growth, while firm’s age and its export orientation are found to be important factors only for the firm’s extensive growth. The results support the great importance of external factors for firm’s learning process and, consequently its TFP growth, in particular competitive pressure in the market and foreign firms’ presence rather than ability of learning through firm’s own exporting activity or from its eventual foreign owner.