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Business Conditions and Exit Risks Across Countries

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  • Michael Pflüger
  • Stephan Russek

Abstract

The risk of market exit that business firms face is significant and differs widely across countries. This paper explores the links between countries’ business conditions and the exit risk at the country level. We set up a general equilibrium model which allows us to derive sharp predictions concerning how key factors which shape a country’s business and trade environment impact on the exit risk of firms which operate in these environments. The model is able to explain the negative correlation between countries’ average labor productivity and the perceived risks of exit borne out in the facts and its predictions accord with evidence on country differences in business conditions. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Michael Pflüger & Stephan Russek, 2013. "Business Conditions and Exit Risks Across Countries," Open Economies Review, Springer, vol. 24(5), pages 963-976, November.
    • Handle: RePEc:kap:openec:v:24:y:2013:i:5:p:963-976
    DOI: 10.1007/s11079-013-9277-5
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    2. Udo Broll & Peter Welzel & Kit Wong, 2015. "Exchange Rate Risk and the Impact of Regret on Trade," Open Economies Review, Springer, vol. 26(1), pages 109-119, February.

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    More about this item

    Keywords

    Firm death; Firm heterogeneity; Business conditions; Firm productivity; Trade integration; F12; F13; F15; L25;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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