The fact that quickly growing companies, or scaleups, are often responsible for most of national employment growth has been mentioned many times before in posts on Entrepreneurship Ecosystem Insights. Now a group of researchers from Carnegie Mellon university published new evidence, arguing that the nature of the relationship between firm growth and national growth depends on how we define high growth. They used a dataset of 1 million Romanian firms active between 2002 and 2012 to find the connections between firm-level activity and economic growth.
Conventionally, high growth is defined as high percentage growth of revenue (sales, or turnover), or a nominal increase in employees. Many more choices are made along the way as researchers identify high growth: about measurement (absolute or relative?), about the timeframe (1, 3, 5, or 7 years? ), and the type of growth (hiring, mergers and acquisitions, or total). Depending on these choices, the group of firms identified as high-growth firms can be very different.
Below are some recommendations the research yielded.
- Define high-growth firms with multiple indicators, to capture multiple aspects of growth.
- Index-type measures are more reliable than absolute or percentage measures.
- Avoid policies geared only towards productivity or employment growth. Long-term employment growth is linked to a decrease in firm productivity, but high-productivity firms tend to have a shorter life-span.
The original research by Serban Mogos, Alexander Davis, and Rui Baptista can be accessed here.
Contributed by Lili Torok.
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