The firm dimension of productivity: The role of productivity dispersion and business dynamics

Aggregate trends emerge from the productivity performance at the firm level and from the process of creative destruction. This chapter relies on micro-data to uncover the role of both processes for productivity and employment growth. The divergence between the most and the least productive firms in Belgium mostly arises from the worsening performance of firms at the bottom of the distribution, especially in services. The evidence suggests that government-financed research and development and training would ease the diffusion of technologies from the domestic frontier and favour the catch-up of the least productive firms. Start-up dynamics is also relatively low in Belgium, and markedly declining in services. Improvements in the business environment would spur market entry and contribute to the productivity-enhancing reallocation of labour.