Title

Structural Change Within Versus Across Firms: Evidence from the United States

Author(s)

Xiang Ding Xiang Ding (Georgetown University)

Teresa C. Fort Teresa Fort (Tuck School of Business, CEPR, and NBER)

Stephen J. Redding Stephen Redding (Princeton University, CEPR, and NBER)

Peter K. Schott Peter Schott (Yale School of Management, CEPR, and NBER)

Abstract

We document the role of intangible capital in manufacturing firms’ substantial contribution to non-manufacturing employment growth from 1977-2019. Exploiting data on firms' "auxiliary" establishments, we develop a novel measure of proprietary in-house knowledge and show that it is associated with increased growth and industry switching. We rationalize this reallocation in a model where firms combine physical and knowledge inputs as complements, and where producing the latter in-house confers a sector-neutral productivity advantage facilitating within-firm structural transformation. Consistent with the model, manufacturing firms with auxiliary employment pivot towards services in response to a plausibly exogenous decline in their physical input prices.

Creation Date

2022-05

Section URL ID

Paper Number

297

URL

https://gceps.princeton.edu/wp-content/uploads/2022/05/wp297_Redding-et-al_US-firm-structure.pdf

File Function

Jel

D24, L16, O47

Keyword(s)

structural transformation, professional services, intangible knowledge, economic growth

Suppress

false

Series

3