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Creative Destruction and Transition: The Effects of Firm Entry and Exit on Productivity Growth in Estonia

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Author Info
Masso, Jaan () (University of Tartu)
Eamets, Raul (University of Tartu and IZA Bonn)
Philips, Kaia (University of Tartu)

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Abstract

This paper presents one of the first studies of firm demographics in Estonia, particularly, on the processes of firm entry and exit as well as survival analysis of new firms. Also decompositions of productivity change into components consisting of resource reallocation, firm entry and exit, and productivity growth within continuing firms is carried out. Our results, derived from a novel database of the population of Estonian firms, show that firm turnover has been rather high in Estonia during the observed period from 1995 to 2001, resulting from low institutional entry barriers and emergence of the SME sector. The high survival rates for new firms and surviving firms’ relatively fast growth could reflect their relatively high productivity compared to incumbent firms and changes in the sectoral structure of the economy. The decomposition of productivity change shows that the high productivity growth has been mostly from within-firm productivity growth (e.g. the adoption of new production technologies and organizational changes), but the reallocation of production factors (especially the exit of low productivity units) has played an important role as well.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1243.

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Length: 42 pages
Date of creation: Aug 2004
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Handle: RePEc:iza:izadps:dp1243

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Related research
Keywords: firm survival; firm entry and exit; productivity decompositions; Estonia;

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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  1. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Blackwell Publishing, vol. 42(3), pages 227-45, September. [Downloadable!] (restricted)
  2. Blomström, Magnus & Kokko, Ari, 2003. "Human Capital and Inward FDI," CEPR Discussion Papers 3762, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. J. David Brown & John S. Earle, 2004. "Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition," Staff Working Papers 04-98, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
    Other versions:
  4. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Brown, David J. & Earle, John S., 2002. "Job Reallocation and Productivity Growth Under Alternative Economic Systems and Policies: Evidence from the Soviet Transition," IZA Discussion Papers 644, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. De Loecker, Jan & Konings, Jozef, 2003. "Creative Destruction and Productivity Growth in an Emerging Economy: Evidence from Slovenian Manufacturing," IZA Discussion Papers 971, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  9. Frederic Warzynski, 2002. "Do Schumpeterian Waves of Creative Destruction Lead to Higher Productivity? Panel Data Evidence from Poland," LICOS Discussion Papers 12002, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  10. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  11. John R. Baldwin & Wulong Gu, 2002. "Plant Turnover and Productivity Growth in Canadian Manufacturing," OECD Science, Technology and Industry Working Papers 2002/2, OECD, Directorate for Science, Technology and Industry. [Downloadable!]
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  12. Bee Yan Aw & Xiaomin Chen & Mark J. Roberts, 1997. "Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing," NBER Working Papers 6235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
    Other versions:
  14. repec:cup:cbooks:9780521465618 is not listed on IDEAS
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