Sector Switching: An Unexplored Dimension Of Firm Dynamics In Developing Countries
Source: Trinity College Dublin
Much of the literature on industry evolution has found firm dynamics to be an important source of sector-level productivity growth. In this paper, the authors ask whether the delineation of entry and exit firms matters in assessing the impact of firm turnover. Using detailed firm level data from Vietnam, it emerges that efficiency differences between sector switchers and exit/entry firms exist. Distinguishing between switchers and firm entry/exit is crucial for understanding the contribution of firm turnover to overall productivity growth. Moreover, they uncover distinct and illuminating firm and sector-level determinants of firm exit and switching, which need to be carefully considered in the search for effective policy.