The Dynamics of Establishment Productivity: Technology Transfer and Productivity Dispersion

This paper investigates the dynamics of Total Factor Productivity at the establishment level. We introduce technology transfer into a framework with heterogeneous firms and ongoing entry and exit. We find evidence that convergence to the frontier is statistically and quantitatively important. Foreign multinationals make up a significant proportion of establishments at the technological frontier, and therefore make an important contribution to productivity growth through shifting out the technological frontier and thus allowing greater technology transfer. Acknowledgements: This work was funded by the Gatsby Charitable Foundation, the ESRC Centre for Microeconomic Analysis of Public Policy at the Institute for Fiscal Studies and the ESRC/EPSRC AIM initiative. The paper has been produced under contract to the ONS. We are grateful to Andrew Bernard, John Van Reenen, Richard Rogerson, Dieter Urban, three anonymous referees, as well as conference and seminar participants at CEPR, the Institute for Fiscal Studies, the Royal Economic Society Conference, and the University of Nottingham for helpful comments. This work contains statistical data from ONS which is Crown Copyright and reproduced with the permission of the controller of HMSO and Queen’s Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. Responsibility for any results, opinions, and errors lies with the authors alone. JEL Classification: F23, O33, O47