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Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies

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  • J. David Brown
  • John S. Earle

Abstract

What role does new firm entry play in economic growth? Are entrants and young firms more or less productive than incumbents, and how are their relative productivity dynamics affected by financial constraints and the business environment? This paper uses comprehensive manufacturing firm data from seven economies (United States, Georgia, Hungary, Lithuania, Romania, Russia, and Ukraine) to measure new firm entry and the productivity dynamics of entrants relative to incumbents in the same industries. We contrast hypotheses based on “leapfrogging,” in which entrants embody superior productivity, with an “experimentation” approach, in which entrants face uncertainty and incumbents can innovate. The results imply that leapfrogging is typical of early and incomplete transition, but experimentation better characterizes both the US and mature transition economies. Improvements in financial markets and the business environment tend to raise both the entry rate and productivity growth, but they are associated with negative relative productivity of entrants and smaller contributions of reallocation to growth among both entrants and incumbents.

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File URL: ftp://ftp2.census.gov/ces/wp/2010/CES-WP-10-20.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-20.

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Length: 49 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:cen:wpaper:10-20

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  1. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2004. "The Effect of Structural Reforms on Productivity and Profitability Enhancing Reallocation: Evidence from Colombia," NBER Working Papers 10367, National Bureau of Economic Research, Inc.
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