Analysis · Business
When a New Company ID Looks Like Economic Growth
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
A factory can appear to close and reopen without stopping production: its identification number simply changes. In a study of Chinese manufacturing, one-sixth of firms tracked for multiple years changed their official ID. Missing those changes could turn restructuring into an apparent wave of business births and deaths.
Loren Brandt, Johannes Van Biesebroeck and Yifan Zhang addressed this problem in their 2011 study, Creative accounting or creative destruction? They examined annual records from 1998–2007 covering approximately 90% of manufacturing gross output. Alongside official IDs, they used names, addresses and other details to connect firms across years.
The researchers estimated total factor productivity: output relative to a combination of production inputs. They adjusted for prices, capital measurement and labor inputs, then separated productivity growth associated with continuing firms from the contribution of entry and exit. This distinguishes expansion through additional resources from growth beyond what measured input increases explain.
Their main decomposition attributed 72% of aggregate productivity growth over the full period to net entry. That contribution included entrants’ subsequent improvement and changing output shares, alongside the disappearance of less productive firms. Meanwhile, shifts of resources toward more productive businesses already operating contributed relatively little. Industry growth therefore concealed very different patterns beneath the total.
The precise figures depend on measurement choices: an alternative decomposition put net entry’s contribution above 50%. Small private firms below the survey’s sales threshold were generally excluded, and appearing in the records did not always mean being newly founded. These observational calculations do not establish that entry policies caused the measured gains.
For anyone assessing business expansion, the useful lesson is to follow identities and inputs as carefully as sales. Separate improvement within existing operations from changes in which businesses are counted. A rising industry average alone cannot reveal how an individual company became more productive.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing Loren Brandt, Johannes Van Biesebroeck, Yifan Zhang
