Firm Dynamics and Aggregate Growth: The Case of Hungary

This paper reports some stylised facts on firm dynamics in Hungary for the period 2001–2015. We find that young firms tend to be small. They grow fast, but at the same time they are risky, have a high exit rate and their productivity is lower than that of older firms. Despite their small share in aggregate output, their contribution to aggregate growth is significant. Their dynamism comes from their young age rather than from their small size. Export performance is somewhat different, as older firms remain more active and make a significant contribution to aggregate growth. During the crisis, young firms still made a positive contribution to growth, but the deteriorating performance of older firms dominated the aggregate picture, because of their large share in production. The behaviour of firm groups by size and age varied during the crisis and the recovery. Interestingly, the recovery seems to be dominated by the lower-end of the distribution of firm population; destruction eased and fewer firms exited, but there was no recovery in gross creation. Firm entry kept falling even during the recovery period, which must have contributed to the sluggish, weak recovery