Business dynamics and employment growth: a cross-country analysis

André van Stel and Bart Diephuis

Papers on Entrepreneurship, Growth and Public Policy from Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group

Abstract: This paper examines the relationship between business dynamics (entry and exit of firms) and employment growth at the country-industry level. We use a cross-country data set with harmonized data on numbers of entries and exits for a selection of fast-growing and innovative industries in six developed economies. In our regression analysis we allow for separate effects of both the extent of business dynamics (volatility of firms) and the composition of business dynamics (net-entry of firms). We also test for the existence of an 'optimal' level of business volatility, possibly indicating that entry and exit levels are too high in certain industries. We find positive employment effects of net-entry rates, both for manufacturing industries and for services industries. Regarding volatility, we find a positive effect for manufacturing but no significant effect for services. This implies that different government policies may be required to achieve growth in these sectors. We find no evidence for an 'optimal' level of business volatility.

Keywords: business dynamics; employment growth; entrepreneurship (search for similar items in EconPapers)
JEL-codes: J23 L10 M13 O57 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004-07
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Working Paper: Business dynamics and employment growth: A cross-country analysis (2004)
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