Abstract:

Young firms are integral to productivity enhancing resources reallocation. However, they need to be more productive than the average firm to play that part. In Australia, manufacturing entrepreneurs are quite unproductive upon entry. Yet, the productivity of those that survive makes a quantum leap in one year and starts to converge to that of the mature firms. Those entrepreneurs that grow substantially by age three, termed as transformative, have a major productivity advantage. Interesting productivity dynamics are also afoot for entrepreneurs located within clusters of firms and patents that lead to productivity advantages. The findings shed light on a multitude of externalities affecting the productivity of young firms and have implications for the related government policies.