Does Schumpeterian Creative Destruction Lead to Higher Productivity? The effects of firms’ entry

Carlos Carreira () and Paulino Teixeira ()

No 2010-20, GEMF Working Papers from GEMF - Faculdade de Economia, Universidade de Coimbra

Abstract: This paper discusses the impact of newly created firms on industry productivity growth. Our central hypothesis is that there are two potential effects of new firms on productivity growth: a direct effect, as entrants may be relatively more productive than established firms; and an indirect effect, through increased competitive pressure that stimulates incumbents to elevate their productivity in order to survive. The results of the decomposition exercise of aggregate productivity growth suggest that the direct contribution of entry is small. In turn, the regression analysis on the effect of entry on productivity growth of incumbents indicates that the higher is the former, the higher is the latter, which is equivalent to say that the greater is the competitive pressure generated by new entrants, the higher is the expected aggregate productivity level.

Keywords: Entry; Firm dynamics; Productivity growth; Competition effect (search for similar items in EconPapers)
JEL-codes: L11 L16 L25 O12 O47 L60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-eff, nep-ent, nep-sbm and nep-tid
Date: 2010-09
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Persistent link: http://EconPapers.repec.org/RePEc:gmf:wpaper:2010-20

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