This paper examines the relationship between business dynamics (entry and exit of firms) and employment growth at the country-industry level. We use a cross-country data set with harmonized data on numbers of entries and exits for a selection of fast-growing and innovative industries in six developed economies. In our regression analysis we allow for separate effects of both the extent of business dynamics (volatility of firms) and the composition of business dynamics (net-entry of firms). We also test for the existence of an 'optimal' level of business volatility, possibly indicating that entry and exit levels are too high in certain industries. We find positive employment effects of net-entry rates, both for manufacturing industries and for services industries. Regarding volatility, we find a positive effect for manufacturing but no significant effect for services. This implies that different government policies may be required to achieve growth in these sectors. We find no evidence for an 'optimal' level of business volatility.
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Find related papers by JEL classification: J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
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