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The Turnover of Firms and Industry Growth

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  • Dan Johansson

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Abstract

In a dynamic setting, every firm can be regarded as a “business experiment” with the objective to search and explore new business opportunities. It is suggested that the growth of an industry is enhanced by new-firm entry, since a positive correlation between the number of successes, i.e. fast-growing firms, and the number of business experiments is to be expected. Exit is necessary to sort out the firms that the market rejects. Hence, it is rather the entry and exit of firms that jointly should have a positive effect on growth, rather than the number of entries in isolation. This paper tests the hypothesis that a high turnover rate of firms has no, or a negative, effect on industry growth. The analysis is based on an extensive data set covering all Swedish IT firms that existed between 1994 and 1998. The turnover rate of firms is found to have a significantly positive effect on industry growth. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11187-005-6446-y
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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 24 (2005)
Issue (Month): 5 (06)
Pages: 487-495

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Handle: RePEc:kap:sbusec:v:24:y:2005:i:5:p:487-495

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Web page: http://www.springerlink.com/link.asp?id=100338

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  1. David Audretsch & Michael Fritsch, 2002. "Growth Regimes over Time and Space," Regional Studies, Taylor and Francis Journals, vol. 36(2), pages 113-124.
  2. Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618.
    • Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574.
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Citations

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Cited by:
  1. Henrekson, Magnus & Johansson, Dan, 2010. "Firm Growth, Institutions and Structural Transformation," Ratio Working Papers 150, The Ratio Institute.
  2. Dong-hyun Oh & Almas Heshmati & Hans Loof, 2009. "Technical Change and Total Factor Productivity Growth for Swedish Manufacturing and Service Industries," TEMEP Discussion Papers 200912, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Sep 2009.
  3. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
  4. van Praag, Mirjam & Versloot, Peter H., 2007. "What Is the Value of Entrepreneurship? A Review of Recent Research," IZA Discussion Papers 3014, Institute for the Study of Labor (IZA).
  5. Mulligan, Robert F., 2004. "Fractal analysis of highly volatile markets: an application to technology equities," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 155-179, February.
  6. Eliasson, Gunnar & Johansson, Dan & Taymaz, Erol, 2005. "Firm Tunrover and the Rate of Macroeconomic Growth - Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction," Ratio Working Papers 66, The Ratio Institute.
  7. Satu Nurmi, 2004. "Plant Size, Age and Growth in Finnish Manufacturing," Finnish Economic Papers, Finnish Economic Association, vol. 17(1), pages 3-17, Spring.
  8. Bjuggren, Carl Magnus & Daunfeldt, Sven-Olov & Johansson, Dan, 2010. "Ownership and High-Growth Firms," Ratio Working Papers 147, The Ratio Institute, revised 29 Sep 2010.
  9. Fridh, Ann-Charlotte, 2003. "The Exit of Pharmacia and Regional Growth," Ratio Working Papers 22, The Ratio Institute.
  10. Henrekson, Magnus & Johansson, Dan, 2008. "Gazelles as Job Creators – A Survey and Interpretation of the Evidence," Ratio Working Papers 117, The Ratio Institute.
  11. Dawn DeTienne & Melissa Cardon, 2012. "Impact of founder experience on exit intentions," Small Business Economics, Springer, vol. 38(4), pages 351-374, May.
  12. Dan Johansson, 2010. "The theory of the experimentally organized economy and competence blocs: an introduction," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 185-201, April.
  13. Eliasson, Gunnar & Eliasson, Åsa, 2004. "The Theory of the Firm and the Markets for Strategic Acquisitions," Ratio Working Papers 44, The Ratio Institute.

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