Firm heterogeneity and business dynamism matter for productivity. Productivity tends to increase with firm size, as large firms exploit increasing returns to scale. However, new small firms are often found to spur aggregate productivity growth as they enter with new technologies and stimulate productivity-enhancing changes by incumbents. The reallocation of resources across enterprises, driven by firm dynamics, is also expected to increase aggregate productivity via a process of ”creative destruction”, whereby innovative firms enter the market and expand while displacing lower productivity firms.