Huiyu Li

Firm Turnover Rate and Development
2013 Dissertation Fellowship

In the economic theory of growth through creative destruction, innovation occurs because new firms try to replace incumbent firms by providing better products. In practice, many policies aim higher growth by subsidizing the entry of new firms.

However, the relationship between entry and growth is not clear. Gross firm turnover rate (the number of entering and exiting firms as a share of the total number of firms) in Japan has been less than half of the US since the late 1970's. During this period, Japan experienced both decades of productivity growth exceeding the US and the painful extended stagnation.

At face value, this suggests that entry is uncorrelated with growth and there is little justification for Japan’s recent effort (Abenomics) to subsidize entry for growth. My dissertation aims to understand this by linking a large Japanese firm panel data with patent data to uncover who are the innovators in Japan.