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Industrial Development through Takeovers and Exits: the Case of the Cut Flower Exporters in Ethiopia

Yukichi Mano () and Aya Suzuki

No 2013-05, Discussion Papers from Graduate School of Economics, Hitotsubashi University

Abstract: The exit and takeover of firms influence the structure and economic efficiency of an industry. The existing literature suggests that firms gradually learn about their own productivity. Some stagnate and ultimately exit if they encounter unfavorable prospects; others survive and grow. This selection process implies that the probability of firm exit initially increases with firm age as learning progresses before it eventually falls as learning is completed. We use a firm-level panel of Ethiopia’s cut flower industry to confirm this theoretical implication. The empirical results also suggest that takeover improves productivity and profitability of average firms endowed with a favorable business environment.

New Economics Papers: this item is included in nep-afr and nep-dev
Date: 2013-06
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