Interdependencies in the Dynamics of Firm Entry and Exit

Abstract

Abstract:This paper investigates the dynamics of firm entry and exit with a focus on differences between industrial sectors. The paper discusses how entry rates in industrial sectors are affected by previous exit and entry rates and how exit rates in industrial sectors are affected by previous entry and exit rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated to each other, the multiplier effect and the competition effect. This paper intends two investigate which force that are the predominant one. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC-level, for firms with more than five employees during the period 1991-2000. A dynamic panel data approach as suggested by Anderson and Hsio (1981) and Arellano and Bond (1991) are used in estimating the relationships. The empirical results find some evidence of the multiplier effect being the predominant effect explaining entry while competition effects are more important for explaining exit patterns.

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Dynamic Entry and Exit Linkages in the Brazilian Manufacturing Industry: An Econometric Investigation

“…It appears therefore that the gap in the empirical literature could be fruitfully explored in terms of a relatively neglected topic concerning the dynamic interdependencies between entry and exit rates. Previous works along that line include Johnson and Parker (1994), Kangasharju and Moisio (1998) and Nyström (2007). The latter highlights two kinds of effects that can establish linkages between entry and exit rates.…”