Heterogeneity of Firm Performance 1 Industry Learning Environments and the Heterogeneity of Firm Performance

This paper characterizes inter-industry heterogeneity in rates of learning-by-doing, and examines how industry learning rates are connected with firm performance. Using plant-level data from the US manufacturing sector, we measure the industry learning rate as the coefficient on cumulative output in a production function. We find that learning rates vary considerably among industries and are higher in industries with greater R&D, advertising, and capital intensity. More importantly, we find that higher rates of learning are associated with wider dispersion of Tobin’s q and profitability among firms in the industry. These findings suggest that learning intensity represents an important characteristic of the industry environment that affects the range of firm performance.