The middle productivity trap: Dynamics of productivity dispersion

Using a worldwide firm-level panel dataset I document a “U-shaped” relationship between productivity growth and baseline levels within each country and industry. That is, fast productivity growth is concentrated at both ends of the productivity distribution. This result serves as a potential explanation to two stylized facts documented in the economic literature: the rising productivity dispersion within narrowly defined sectors, and the increasing market share of few yet highly productive firms. I further provide evidence suggesting that such pattern is driven by knowledge-intensive industries, for which cross-firm diffusion of knowledge is presumably more costly.