Interdependencies in the Dynamics of Firm Entry and Exit
AbstractThis paper investigates the interdependence between firm entry and exit from an industrial dynamics perspective. 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, the multiplier effect and the competition effect. This paper intends to investigate which force is the predominant one, for entry and exit patterns, respectively. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC level, during the period 1991–2000. In the estimation work the study applies a dynamic panel data approach as suggested by Anderson and Hsiao [Journal of the American Statistical Association, 76:598–606, 1981 ] and Arellano and Bond [Review of Economic Studies, 58(2):277–297, 1991 ]. With respect to entry, the empirical results support the multiplier effect such that entry stimulates future entry, but also a competition effect such that past exit induces additional entry. With regard to exit, on the other hand, the competition effect rules, implying that previous entry causes subsequent exit and previous exit reduces subsequent exit. Copyright Springer Science + Business Media, LLC 2007
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Bibliographic InfoArticle provided by Springer in its journal Journal of Industry, Competition and Trade.
Volume (Year): 7 (2007)
Issue (Month): 2 (June)
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Web page: http://springerlink.metapress.com/link.asp?id=105724
entry; exit; dynamic panel data; L1; C33;
Other versions of this item:
- Nyström, Kristina, 2005. "Interdependencies in the Dynamics of Firm Entry and Exit," Working Paper Series in Economics and Institutions of Innovation 28, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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