The contribution of start-ups and young firms to industry-level efficiency growth

This article examines the impact of start-ups (active for 1 up to 5 years) and young firms (active for 6 up to 10 years) on industry-level efficiency growth in six EU countries, covering the period 2002–2009. Using semi-parametric estimates of meta-frontier efficiency, it is found that surviving entrants gradually raise their efficiency level in all countries considered. Firm-level efficiency growth decreases with firm age, whereas reallocation towards efficient firms contributes more to industry-level growth as firms mature. The relative contribution of start-ups appears to have been important as they actually contributed positively to overall efficiency growth which, over the period under consideration, was negative in most countries, even before the ‘Great Recession’. There are indications of ‘cleansing’, due to the exit of less efficient firms, during the ‘Great Recession’.