Final presentation of ERC Project 3 by Jun Du

1. 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

2. 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

3. BACKGROUND, RATIONALE AND
OBJECTIVES OF THIS PROJECT

4. Background
… and a baffling produc/vity puzzle!
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

5. 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

6. 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

7. FAST GROWTH FIRMS DEFINITION
MATTERS

8. Defini=on
High Growth Firms
(HGFs)
Growth heroes Top 10s
Feature Employment criterion Produc=vity criterion Top performers along distribu=on
Growth Heroes
(GHs)
Growth Super
Heroes (GSHs)
Employment
growth
Turnover
growth
Produc;vity
growth
Bigger
firms (≥10
employees)
OECD defini;on- OECD
2007 defini;on: more
than 10 employees and
annual average growth in
employment of 20% or
more in 3 year period
Increase
produc;vity in a 3
year period by
increasing
turnover and
employment (Du
and Bonner 2015)
as Growth
Heroes but with
above average
produc;vity in
base year
Firms with
employment
growth lies
within top
10
percen;le in
a 3 year
period
Firms with
turnover
growth lies
within top 10
percen;le in
a 3 year
period
Firms with
produc;vity
growth lies
within top 10
percen;le in
a 3 year
period
Micro (<10
employees)
Clayton OECD-matching
defini;on for smaller
firms -– Firms with fewer
than 10 employees
whose employment
grows by at least 8 in 3
years (Clayton et al 2013)
We looked at:

9. Defini=on Overall
firms
Bigger firms
(≥10
employees)
Micro firms
(<10
employees)
Employment criterion
HGFs 1.1 7.1 --
Small HGFs 1.6 -- 2
Produc;vity criterion
Growth Heroes (GHs) 6.9 12.7 6.2
Growth Super Heroes (GSHs) 1.6 3.3 1.4
Top 10s in distribu;on of
Employment growth 18.3 5.9 21.6
Turnover growth 15.2 9.9 17
Produc;vity growth 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

10. Contribution to the economy
High
Growth
Firms
Growth Heroes
Top 10s
By size
HGFs GHs GSHs
Employmen
t 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

11. So overall:
Contribution of fast growth firms to the economy
Employment based
Produc=vity based
Bigger firms Micro firms Bigger firms Micro firms
OECD-HGFs Small HGFs GHs GSHs GHs GSHs
Jobs (stock)
Jobs (net job
crea;on)
Turnover (stock) ££££ £ ££ £ £ £
Turnover
(growth)
££ £££ ££ ££ £££££ ££££
Produc;vity
(level)
★★★ ★★★★
★
★★ ★★★★ ★★ ★★★★
Produc;vity
(growth)
ê êê ★★★ ★★★ ★★★★ ★★★

12. 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

13. FAST GROWTH FIRMS AND THEIR
WIDER ECONOMIC IMPACT

14. 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

15. 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.

16. 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.

17. 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)

18. 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.
Firm growth: jobs or
produc=vity
Firm control
• size
• age
• productivity
• foreign ownership
• group
Regional and industrial control
• 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
Fixed effects
• Regional (NUTS 3-digit level)
• industrial (SIC 2-digit level)
• time

19. Finding 1- Industry externalities on Employment growth
Horizontal sector SGHs OECD HGFs
Prof. Services é★★
Manufacturing ê★ ê★★
Suppliers SGHs OECD HGFs
Prof. Services ê★★★ ê★★★
Manufacturing
Customers SGHs OECD HGFs
Prof. Services é★★★ ê★★★
Manufacturing é★★★
H
S
C
-
+

20. Finding 2- Industry externalities on Productivity growth
Suppliers SGHs OECD HGFs
Prof. Services é★★★ é★★★
Manufacturing é★★★ ê★★★
Horizontal sector SGHs OECD HGFs
Prof. Services ê★★★ é★★★
Manufacturing é★★★ é★★★
Customers SGHs OECD HGFs
Prof. Services é★★★ é★★★
Manufacturing é★★★ é★★★
H
S
C
+
+ +

21. Finding - Industry externalities on productivity growth
Suppliers SGHs OECD HGFs
Prof serv Overall é★★★ é★★★
Manufacturing
Overall é★★★ ê★★★
Low tech é★★★ ê★★★
High tech é★★★
Large é★
Small é★★★ ê★★★
Old é★★★ ê★★★
Young é★★★ ê★★★
Horizontal sector SGHs OECD HGFs
Prof serv ê★★★ é★★★
Manufacturing
Overall é★★★ é★★★
Low tech é★★★ é★★★
High tech
Large é★★★ é★
Small é★★ é★★
Old é★★★ é★★
Young é★
Customers SGHs OECD HGFs
Prof serv Overall é★★★ é★★★
Manufacturing
Overall é★★★ é★★★
Low tech é★★★ é★★★
High tech
Large
Small é★★★ é★★★
Old é★★★
Young é★★★
H
S
C
+
+ +

22. 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

23. 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

24. 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
dijt
2

25. 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

26. 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

27. Research output, dissemination and
further research
• Two reports, two policy briefs, publica;ons,
Blog and media
• Dissemina;on
– RSA Winter conference 2016, 24 November, London.
– ERC annual conference, 30 November 2016.
– Associa;on of American Geographers Annual Mee;ng in
Boston, April 5-9, 2017.
• Further research

28. If you would like any more informa;on about this
research please contact us:
Jun Du j.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.