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The Survival of Industrial Plants

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  • Michael Gort
  • J. Bradford Jensen
  • Seong-Hoon Lee

Abstract

The study seeks to explain the attrition rate of new manufacturing plants in the United States in terms of three vectors of variables. The first explains how survival of the fittest proceeds through learning by firms (plants) about their own relative efficiency. The second explains how efficiency systematically changes over time and what augments or diminishes it. The third captures the opportunity cost of resources employed in a plant. The model is tested using maximum-likelihood probit analysis with very large samples for successive census years in the 1967-97 period. One sample consists of an unbalanced panel of about three-fourths of a million plants of single and multi-unit firms, or alternatively of about 300,000 plants if only the most reliable data are considered. The second is restricted to the plants of multi-unit firms in the same time span and consists of an unbalanced panel of more than 100,000 plants. The empirical analysis strongly confirms the predictions of the model.

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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 02-25.

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Date of creation: Oct 2002
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Handle: RePEc:cen:wpaper:02-25

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Keywords: CES; economic; research; micro; data; microdata; chief; economist;

References

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  1. Guimaraes, Paulo & Mata, José & Portugal, Pedro, 1995. "The Survival of New Plants: Start-up Conditions and Post-entry Evolution," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1203, C.E.P.R. Discussion Papers.
  2. Audretsch, David B., 1995. "Innovation, growth and survival," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 13(4), pages 441-457, December.
  3. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers, Pennsylvania State - Department of Economics 1-88-2, Pennsylvania State - Department of Economics.
  4. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 671-98, November.
  5. Wagner, Joachim, 1994. "The Post-entry Performance of New Small Firms in German Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 141-54, June.
  6. Evans, David S., 1986. "Tests of Alternative Theories of Firm Growth," Working Papers, C.V. Starr Center for Applied Economics, New York University 86-36, C.V. Starr Center for Applied Economics, New York University.
  7. Doms, Mark & Dunne, Timothy & Roberts, Mark J., 1995. "The role of technology use in the survival and growth of manufacturing plants," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 13(4), pages 523-542, December.
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
  9. Seong-Hoon Lee & Michael Gort, 2001. "The Life Cycles of Industrial Plants," Working Papers 01-10, Center for Economic Studies, U.S. Census Bureau.
  10. Rajshree Agarwal & Michael Gort, 2002. "Firm and Product Life Cycles and Firm Survival," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 184-190, May.
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