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Microeconomic and Macroeconomic Influences on Entry and Exit of Firms

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Author Info
Ilmakunnas, Pekka (Bank of Finland Research)
Topi, Jukka () (Bank of Finland Research)

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Abstract

We examine the entry and exit process in the Finnish manufacturing industry. Microeconomic explanations of entry and exit are derived from industrial organization theory and macroeconomic explanations from the theory of monetary transmission mechanism. Since the variables to be explained, the number of entering and exiting firms, are non-negative integers, we use Poisson and negative binomial models in the estimation. The data is a six year panel of three-digit industries. The results show that scale economies form a significant entry barrier, but the evidence on their role as an exit barrier is weaker. Concentration has a negative impact on entry, but this result is not robust to the choice of estimation method. Industry growth has a positive influence on entry and a negative influence on exit, but also variables describing the general economic climate have an influence on the entry-exit process. The variables describing the monetary transmission mechanism have an expected influence on entry. Credit supply has a positive and real interest rate a negative effect on entry. However, the role of the macroeconomic influences on exit is inconclusive. Past entry has a significant effect on exit, which reflects the displacement of old firms by new ones and the short life expectancy of new firms. Both entry and exit have almost unit elasticity with respect to industry size, measured by the number of firms in the previous period. Entry and exit rates are therefore practically independent of industry size.

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File URL: http://www.bof.fi/NR/rdonlyres/E36A1E62-1F7A-4A3B-87D4-A5C9FB7D32D6/0/DP_06_1996.pdf
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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 6/1996.

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Length: 36 pages
Date of creation: 04 Mar 1996
Date of revision:
Handle: RePEc:hhs:bofrdp:1996_006

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: entry; exit; monetary transmission mechanism;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Johnson, Peter & Parker, Simon, 1994. " The Interrelationships between Births and Deaths," Small Business Economics, Springer, vol. 6(4), pages 283-90, August.
  2. Shapiro, Daniel & Khemani, R. S., 1987. "The determinants of entry and exit reconsidered," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 15-26, March. [Downloadable!] (restricted)
  3. Cameron, A Colin & Trivedi, Pravin K, 1986. "Econometric Models Based on Count Data: Comparisons and Applications of Some Estimators and Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 29-53, January. [Downloadable!] (restricted)
  4. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter. [Downloadable!] (restricted)
    Other versions:
  5. Fotopoulos, Georgios & Spence, Nigel, 1997. " Net Entry of Firms into Greek Manufacturing: The Effects of Business Conditions," Small Business Economics, Springer, vol. 9(3), pages 239-53, June. [Downloadable!] (restricted)
  6. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  7. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Fritsch & Oliver Falck & Udo Brixy, 2004. "The Effect of Industry, Region and Time on New Business Survival - A Multi-Dimensional Analysis," Papers on Entrepreneurship, Growth and Public Policy 2004-31, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
    Other versions:
  2. Daunfeldt, Sven-Olov & Orth, Matilda & Rudholm, Niklas, 2008. "Does the Quality of Store Brands Affect the Number of National Brand Suppliers?," HUI Working Papers 18, The Swedish Retail Institute (HUI). [Downloadable!]
  3. Helen Louri, 2001. "Entry through Acquisition: Determinants of Multinational Firm Choices," Review of Industrial Organization, Springer, vol. 19(2), pages 199-209, September. [Downloadable!] (restricted)
  4. J. Arauzo & M. Manjón & M. Martín & A. Segarra, 2007. "Regional and Sector-specific Determinants of Industry Dynamics and the Displacement–replacement Effects," Empirica, Springer, vol. 34(2), pages 89-115, April. [Downloadable!] (restricted)
  5. Werner Hölzl, 2003. "Tangible and intangible sunk costs and the entry and exit of firms in Austrian Manufacturing," Working Papers geewp33, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  6. Mikko Leppaemaeki & Vesa Kanniainen, 2000. "Entrepreneurship in a Unionised Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. van Kranenburg, Hans L. & Palm, Franz C. & Pfann, Gerard A., 2002. "Survival in a Concentrating Industry: The Case of Daily Newspapers in the Netherlands," IZA Discussion Papers 565, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Richard I.D. Harris & Qian Cher Li, . "Export-market dynamics and the probability of firm closure: Evidence for the UK," Working Papers 2008_17, Department of Economics, University of Glasgow. [Downloadable!]
  9. Werner Hölzl, 2005. "Tangible and intangible sunk costs and the entry and exit of firms in a small open economy: the case of Austria," Applied Economics, Taylor and Francis Journals, vol. 37(21), pages 2429-2443, December. [Downloadable!] (restricted)
  10. Hannu Piekkola & Pertti Haaparanta, 1999. "Liquidity Constraints Faced by Firm and Employment," Discussion Papers 695, The Research Institute of the Finnish Economy. [Downloadable!]
  11. Pekka Ilmakunnas & Vesa Kanniainen & Uki Lammi, . "Entrepreneurship, Economic Risks, and Risk-Insurance in the Welfare State," EPRU Working Paper Series 99-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  12. Secil Kaya & Yesim Üçdogruk, 2002. "The dynamics of entry and exit in turkish manufacturing industry," ERC Working Papers 0202, ERC - Economic Research Center, Middle East Technical University, revised Feb 2002. [Downloadable!]
  13. Erik Stam & Roy Thurik & Peter van der Zwan, 2008. "Entrepreneurial Exit in Real and Imagined Markets," Tinbergen Institute Discussion Papers 08-031/3, Tinbergen Institute, revised 31 Dec 2008. [Downloadable!]
    Other versions:
  14. Werner Hölzl & Sögner Leopold, 2004. "Entry and Exit Dynamics in Austrian Manufacturing," Working Papers geewp36, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
  15. Sven-olov Daunfeldt & Niklas Rudholm & Fredrik Bergström, 2006. "Entry into Swedish Retail and Wholesale Trade Markets," Review of Industrial Organization, Springer, vol. 29(3), pages 213-225, November. [Downloadable!] (restricted)
    Other versions:
  16. Pekka Ilmakunnas & Vesa Kanniainen, 2000. "Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978-93," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  17. Heli Koski & Carolina Sierimo, 2003. "Entry and Exit in the ICT Sector - New Markets, New Industrial Dynamics?," Discussion Papers 847, The Research Institute of the Finnish Economy. [Downloadable!]
  18. Timothy C. G. Fisher & Jocelyn Martel, 2003. "The Effect of Bankruptcy Reform on the Number of Corporate Reorganization Proposals," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 339-349, September. [Downloadable!] (restricted)
  19. T. C. G. Fisher & J. Martel, 2001. "A Comparison of Business Bankruptcies across Industries in Canada, 1981-2000," THEMA Working Papers 2001-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  20. Böckerman, Petri & Hämäläinen, Kari & Maliranta, Mika, 2002. "Sources of job and worker flows: Evidence from a panel of regions," MPRA Paper 4887, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  21. Marcus Box, 2008. "The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden," Small Business Economics, Springer, vol. 31(4), pages 379-393, December. [Downloadable!] (restricted)
  22. Nico Dewaelheyns & Cynthia Hulle, 2008. "Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code," Small Business Economics, Springer, vol. 31(4), pages 409-424, December. [Downloadable!] (restricted)
  23. Ugur Soytas, 2006. "Long run relationship between entry and exit: time series evidence from Turkish manufacturing industry," Economics Bulletin, Economics Bulletin, vol. 12(11), pages 1-12. [Downloadable!]
  24. H. Van Kranenburg & F. Palm & G. Pfann, 2002. "Exit and Survival in a Concentrating Industry: The Case of Daily Newspapers in the Netherlands," Review of Industrial Organization, Springer, vol. 21(3), pages 283-303, November. [Downloadable!] (restricted)
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