Is subsidizing entry an optimal policy?

Enrico Santarelli ()
Authors registered in the RePEc Author Service: Marco Vivarelli ()

Industrial and Corporate Change, 2002, vol. 11, issue 1, pages 39-52

Abstract: Public subsidies in support of new firm foundation are among the most frequently used instruments of industrial policy in the Euro zone. This paper analyses their effectiveness and efficiency vis-ý-vis some features of the overall process of industry dynamics in Italian manufacturing. To this end, the survival and growth patterns of new small firms are investigated using a unique dataset on electrical and electronic engineering in Italy. As regards survival, our results confirm the findings of other studies, namely that the hazard rates are particularly high in the early stages of firm's lifecycle. As far as growth is concerned, the main finding in this study is that Gibrat's Law fails to hold in the years immediately following start-up, when smaller firms must 'rush' in order to achieve a size large enough to enhance their likelihood of survival; conversely, in later stages of a firm's lifecycle this Law cannot be ignored. These results radically question the use of subsidies as an optimal policy for the support of new entries, since the subsidy brings about a major bias in the process of market selection (including substitution and deadweight effects) and hampers the post-entry scale adjustment of newborn firms. Copyright 2002, Oxford University Press.

Date: 2002
View citations in EconPapers

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Is Subsidizing Entry An Optimal Policy? (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:indcch:v:11:y:2002:i:1:p:39-52

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Industrial and Corporate Change is edited by David Teece, Glenn R. Carroll, Nick Von Tunzelmann, Giovanni Dosi and Franco Malerba

More articles in Industrial and Corporate Change from Oxford University Press
Address: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Series data maintained by Christopher F. Baum ().