ERC II Project 3

Growth Heroes and Their Wider Economic Impact

Jun Du, Karen Bonner, Enrico Vanino ERC, Aston University

ERC End Project Meeting 13 December, 2016

Structure of this presentation

•  Background, rationales and objectives of Project 3 •  Fast growth firm definition matters: findings and

implications •  Fast growth firms and their wider economic

impact: findings and implications •  Research outputs, dissemination and further work •  Questions and comments

BACKGROUND,RATIONALEANDOBJECTIVESOFTHISPROJECT

Background

…andabafflingproduc/vitypuzzle!

High Growth Firms and Productivity - Evidence from the United Kingdom, 2014, Du Jun and Yama Temouri, Small Business Economics, 44:123–143

Decomposing UK Aggregate Labour Productivity and Growth, 1998-2013, 2015, Du Jun and Karen Bonner, ERC Report

Problem 1: Fast growth firms definition High growth firms, in

employment (OECD, 2007)

High impact firms

Growth heroes (Du and Bonner

2015)

Top performers

Millennium 2000 firms (Hart et al 2016)

High growth entrepreneurs

Gazelles

High employment growth firms

(Clayton et al, 2013)

High growth firms, in value

Objective 1: To understand the differences in fast growth definitions and their implications

Problem 2: Limited predictability of fast growth firms Growth persistence is not at firm level, but at regional level•  The predictability of fast growth

episodes remains limited

•  firm growth is typically highly discontinuous and high employment growth is not persistent among firms

•  Recent research on growth persistence beyond single firms – at regional level Objective 2: To understand what

it means for a region to have more fast growth firms

FASTGROWTHFIRMSDEFINITIONMATTERS

Defini=on HighGrowthFirms(HGFs) Growthheroes Top10s

Feature Employmentcriterion Produc=vitycriterion Topperformersalongdistribu=on

GrowthHeroes(GHs)

GrowthSuperHeroes(GSHs)

Employmentgrowth

Turnovergrowth

Produc;vitygrowth

Biggerfirms(≥10employees)

OECDdefini;on-OECD2007defini;on:morethan10employeesandannualaveragegrowthinemploymentof20%ormorein3yearperiod

Increaseproduc;vityina3yearperiodbyincreasing

turnoverandemployment(DuandBonner2015)

asGrowthHeroesbutwithaboveaverageproduc;vityinbaseyear

Firmswithemploymentgrowthlieswithintop

10percen;leina3yearperiod

Firmswithturnovergrowthlieswithintop10percen;leina3yearperiod

Firmswithproduc;vitygrowthlieswithintop10percen;leina3yearperiod

Micro(<10employees)

ClaytonOECD-matchingdefini;onforsmallerfirms-–Firmswithfewerthan10employeeswhoseemploymentgrowsbyatleast8in3years(Claytonetal2013)

We looked at:

Defini=on Overallfirms

Biggerfirms(≥10

employees)Microfirms

(<10employees)

Employmentcriterion HGFs 1.1 7.1 --SmallHGFs 1.6 -- 2

Produc;vitycriterion GrowthHeroes(GHs) 6.9 12.7 6.2GrowthSuperHeroes(GSHs) 1.6 3.3 1.4

Top10sindistribu;onofEmploymentgrowth 18.3 5.9 21.6Turnovergrowth 15.2 9.9 17Produc;vitygrowth 15.3 15.3 16

Note: % relates to share of total stock of firms alive in the base year (national total survivors). Data source: the ONS Business Structure Database (BSD) 1997-2013.

We find: Presence of fast growth firms in the economy

Contribution to the economy

High Growth Firms

Growth Heroes Top 10s

By size

HGFs GHs GSHs Employment growth

Turnover growth

Productivity growth

Bigger firms (≥10 employees

)

Jobs (stock), % 4.6 16.1 5.3 3.5 7.7 10.9

Jobs (net creation), % 96.2 53.7 14.5 96.0 52.7 -45.1

Turnover (stock), % 7.1 12.8 8.3 5.5 5.8 7.1

Turnover (growth) 81.9 70.8 61.6 96.8 278.9 156.4

Productivity (level) 248.7 96.7 221.6 270.1 111.1 83

Productivity (Growth) -37.4 38.9 43.2 -45.1 395.1 751

Micro firms (<10

employees)

Jobs (stock), % 0.5 6.1 1.4 12.3 12.0 14.8

Jobs (net creation),% 25.7 12.0 2.4 71.3 35.7 -6.2

Turnover (stock), % 1.2 0.7 0.4 3.7 1.6 1.5

Turnover (growth) 103.2 208.9 163 86.9 413.5 297.7

Productivity (level) 473.5 87.6 205.3 226.8 102.1 77.9

Productivity (Growth) -73.1 52.4 42.6 -50.6 218 389.1

We also find: Contribution of fast growth firms to the economy

So overall: Contribution of fast growth firms to the economy

Employmentbased

Produc=vitybased

Biggerfirms Microfirms Biggerfirms Microfirms

OECD-HGFs SmallHGFs GHs GSHs GHs GSHs

Jobs(stock)

Jobs(netjobcrea;on)

Turnover(stock) ££££ £ ££ £ £ £

Turnover(growth)

££ £££ ££ ££ £££££ ££££

Produc;vity(level)

★★★ ★★★★★

★★ ★★★★ ★★ ★★★★

Produc;vity(growth)

ê êê ★★★ ★★★ ★★★★ ★★★

Definition matters!

•  Applying policy on different type of fast growth firms will affect different business populations which will result in different outcomes.

•  Way forward: Growth Super Heroes + OECD HGFs

Employment-based high growth firms generate lots of jobs but have mixed productivity records

Productivity-based high growth firms have mediocre job creation records but show productivity superiority

FASTGROWTHFIRMSANDTHEIRWIDERECONOMICIMPACT

Regional and industrial externalities

•  Role of location factors (both in the literature of economic georgrphy and HGFs)

•  Region-industry perspectives –  Regional effects examined in relation to the industrial portfolio and

activities

–  Knowledge spillovers within (MAR externalities) and across industries (Jacob, 1969)

–  Localisation externalities: non-knowledge spillovers

–  Urbanisation externalities

Data Main Data Source: •  Business Structure Database 1997-2013 by the UK Data Service

quasi-totality of UK firms about industrial classification, postcode, employment and turnover.

•  Total final sample of 36,601,155 observations, 6,253,704 UK Manufacturing: 500,000 firms, 2,800,000 observations; Professional services: 2,300,000, 11,200,000 observations

Industrial and Regional Data: •  Region-industry employment, productivity, net entry rate and agglomeration

index (BSD database);

•  ONS input-output tables for product and services supply and demand and gross value added (GVA) for all sectors at the 2-digit level in the UK;

•  R&D intensities at the regional and industrial level from UK Innovation Survey database (CIS);

•  Location and size of science parks in the UK are collected from the UK Science Park Association (UKSPA) website.

Geographical Distribution of fast growth firms

OECD employment-based High Growth firms: Relatively more evenly distributed across the country.

Productivity-based Growth Super Heroes: Agglomerated around urban and highly populated areas.

Region-industrial Distribution of fast growth firms

OECD employment-based High Growth firms: Prof. services, food, publishing and media, environmental goods, non-metal products (more labour-intensive sectors)

Productivity-based Growth Super Heroes: Machinery, automotive, transport equipment (more capital intensive manufacturing sectors)

Methodology

Estimation: manufacturing and professional services sectors, large vs small, old vs young enterprises and in low and high-tech sectors. Panel FD-fixed effects model.

Firmgrowth:jobsorproduc=vity

Firmcontrol•  size• age• productivity•  foreign ownership• group

Regionalandindustrialcontrol•  R&D intensity•  Growth potential•  Industrial vitality (net entry rate)•  science parks location

Region-industry spillover effects of fast growth firms (OECD-HGFs or GSHs):•  Horizontal externalities: share of fast growth firms within

industry-region•  Vertical externalities – suppliers & customers: fast

growth firms in upstream and downstream sectors •  Geographic externalities: share fast growth firms at the

postcode level, gravity force of fast growth firms

Fixedeffects• Regional (NUTS 3-digit level)•  industrial (SIC 2-digit level)•  time

Finding 1- Industry externalities on Employment growth

Horizontalsector SGHs OECDHGFsProf.Services é★★Manufacturing ê★ ê★★

Suppliers SGHs OECDHGFsProf.Services ê★★★ ê★★★

Manufacturing

Customers SGHs OECDHGFsProf.Services é★★★ ê★★★

Manufacturing é★★★

H

S

C

-

+

Finding 2- Industry externalities on Productivity growth

Suppliers SGHs OECDHGFsProf.Services é★★★ é★★★Manufacturing é★★★ ê★★★

Horizontalsector SGHs OECDHGFsProf.Services ê★★★ é★★★Manufacturing é★★★ é★★★

Customers SGHs OECDHGFsProf.Services é★★★ é★★★Manufacturing é★★★ é★★★

H

S

C

+ +

+

Finding - Industry externalities on productivity growth Suppliers SGHs OECDHGFsProfserv Overall é★★★ é★★★

Manufacturing

Overall é★★★ ê★★★Lowtech é★★★ ê★★★Hightech é★★★Large é★Small é★★★ ê★★★Old é★★★ ê★★★

Young é★★★ ê★★★

Horizontalsector SGHs OECDHGFsProfserv ê★★★ é★★★

Manufacturing

Overall é★★★ é★★★Lowtech é★★★ é★★★HightechLarge é★★★ é★Small é★★ é★★Old é★★★ é★★

Young é★

Customers SGHs OECDHGFsProfserv Overall é★★★ é★★★

Manufacturing

Overall é★★★ é★★★Lowtech é★★★ é★★★HightechLargeSmall é★★★ é★★★Old é★★★

Young é★★★

H

S

C

+ +

+

Finding 3: Regional distribution of externalities

EMPLOYMENT: negative effect in peripheral areas (Scotland and Northern England), positive in urban and populated areas (London, South-East, Birmingham, Northern Powerhouse)

PRODUCTIVITY: positive effects on productivity where negative impact on employment growth: rural and sub-urban peripheral areas

Finding 4: Region-industry distribution of externalities

•  Negative on Employment: automotive, fuels, optical instruments, textile and apparel •  Positive on Productivity: prof. services, chemicals, computer industry •  Largest spillovers in peripheral areas: Wales, NI, North-East England

Finding 5 – Geographic Externalities

1.  Postcode Agglomeration same as industrial externalities:

- negative on employment - positive on productivity

2. FG Gravity Force

1. FG Postcode Agglomeration

2. FG Gravity force: FG Positive demonstrative and market-creation effects on both employment and productivity growth

Gravity = EitEjt

dijt2

Summary and discussion Key message: Beyond job creation and productivity improvement within their own organizations, high growth firms have externalities to other firms in the region, within and across industrial sectors. Industrial externalities of fast growth firms: Horizontal effects:

•  Competition-led efficiency improvement with positive productivity spillovers

•  Sign of reallocation of inputs to more productive (and likely more innovative) firms within sectors

•  Competition-led crowding out effects for skills and labour Vertical effects:

•  Increased demand for services and products along supply chain – positive market creation effect

•  Improved productivity and efficiency in upstream sectors – knowledge spillovers effects

•  Competition-led crowding out effects for skills and labour in the upstream sectors

Summary and discussion (conti)

Regional disparity: •  Advantageous urban areas in labour and skill provision •  Interestingly, the areas of more high growth incidences are not

necessarily those which benefit most from it Geographic externalities: Local Agglomeration (Postcode level)

§  Competition-led efficiency improvement with positive productivity spillover §  Competition-led crowding out effects for skills and labour

Gravity Force §  Demonstration effects and new local demand for services and products

with positive externalities on both employment and productivity growth

Research output, dissemination and further research

•  Tworeports,twopolicybriefs,publica;ons,Blogandmedia

•  Dissemina;on–  RSAWinterconference2016,24November,London.–  ERCannualconference,30November2016.–  Associa;onofAmericanGeographersAnnualMee;nginBoston,April5-9,2017.

•  Furtherresearch

Ifyouwouldlikeanymoreinforma;onaboutthisresearchpleasecontactus:JunDuj.du@aston.ac.uk

This work contains statistical data from ONS which is Crown Copyright. The use of these data does not imply the endorsement of the data owner or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates.