Reallocation, Firm Turnover and Efficiency: Selection on Productivity or ProfitabilityLucia Foster, John C. Haltiwanger, and Chad Syverson ,
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American Economic Review
We investigate the nature of selection and productivity growth in industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. Because physical productivity is inversely correlated with price while revenue productivity is positively correlated with price, previous work linking (revenue- based) productivity to survival confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both.