Interdependencies in the Dynamics of Firm Entry and Exit

Kristina Nyström

No 28, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper investigates the dynamics of firm entry and exit with a focus on differences between industrial sectors. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry 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 to investigate which force that is 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.

Keywords: Entry; exit; dynamic panel data (search for similar items in EconPapers)
JEL-codes: C33 L10 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-03-18
New Economics Papers: this item is included in nep-com, nep-ent, nep-ind and nep-tid
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Related works:
Journal Article: Interdependencies in the Dynamics of Firm Entry and Exit (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0028

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