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Study: Productivity spillovers from competitive reallocation

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1979 to 1996

Productivity improvements in more successful plants, those that are gaining market share, also benefit their struggling rivals. However, the magnitude of the spillover in productivity from growing plants to those in decline is relatively small.

Such spillovers do not offer much of a safety net for plants that are losing the productivity race.

Spillovers have long been regarded as an important feature of competitive markets. Research has shown that large amounts of market share are transferred over time from plants in decline to those that are growing. Plants that gain market share do so as the result of considerable gains in relative productivity. At issue is whether these productivity gains in growing plants involve productivity spillovers to rival plants in decline.

At most, improvements in productivity within growing plants increased the annual rate of productivity growth among declining plants by between 0.18 and 0.34 percentage points. This spillover from growing to declining plants is relatively small when compared with the differences in productivity growth between the two groups.

Over the periods studied, the median annual rate of productivity growth for plants gaining market share was, on average, about 4 percentage points higher than the median rate for plants that lost market share.

Plants that are losing market share did not obtain any productivity spillover at all from the group of their most productive rivals located at the so-called "technological frontier." The further a declining plant started off behind this group, the lower its productivity growth was likely to be.

These results are consistent with a view of the competitive process in which some plants find new ways to increase their productivity and forge ahead of those with less luck or ability.

While some of the newfound knowledge possessed by emerging, growing plants spills over to the less capable or less lucky, the trickle-down effect was not sufficient to reduce productivity differences between growers and decliners in a meaningful way.

Note: This research paper used data from Statistics Canada's Annual Survey of Manufactures on productivity growth and changes in market share from 1979 to 1996 to investigate whether plants with declining market shares obtained productivity spillovers from more successful producers.

The research paper, "Productivity spillovers from competitive reallocation: Evidence from Canadian manufacturing plants," is now available as part of the Canadian Productivity Review research paper series (15-206-X2009024, free), from the Analytical studies module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Guy Gellatly (613-951-3758), Economic Analysis Division.