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The Black Box of Business Dynamics

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Author Info

  • María Callejón

    ()
    (Facultat d'Economia i Empresa, Avda. Diagonal 690, 08034 Barcelona, Spain)

  • Vicente Ortún

    (Department of Economics and Business, Universitat Pompeu Fabra, Barcelona, Spain)

Abstract

Research in business dynamics has been advancing rapidly in the last years but the translation of the new knowledge to industrial policy design is slow. One striking aspect in the policy area is that although research and analysis do not identify the existence of an specific optimal rate of business creation and business exit, governments everywhere have adopted business start-up support programs with the implicit principle that the more the better. The purpose of this article is to contribute to understand the implications of the available research for policy design. Economic analysis has identified firm heterogeneity as being the most salient characteristic of industrial dynamics, and so a better knowledge of the different types of entrepreneur, their behavior and their specific contribution to innovation and growth would enable us to see into the ‘black box’ of business dynamics and improve the design of appropriate public policies. The empirical analysis performed here shows that not all new business have the same impact on relevant economic variables, and that self-employment is of quite a different economic nature to that of firms with employees. It is argued that public programs should not promote indiscriminate entry but rather give priority to able entrants with survival capacities. Survival of entrants is positively related to their size at birth. Innovation and investment improve the likelihood of survival of new manufacturing start-ups. Investment in R&D increases the risk of failure in new firms, although it improves the competitiveness of incumbents.

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File URL: http://www.pcb.ub.es/xreap/aplicacio/fitxers/XREAP2009-7.pdf
File Function: First version, 2009
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File URL: http://www.pcb.ub.es/xreap/aplicacio/fitxers/XREAP2009-7.pdf
File Function: Revised version, 2009
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Bibliographic Info

Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2009-07.

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Length: 29 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
Handle: RePEc:xrp:wpaper:xreap2009-07

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
Phone: +34+934039653
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Web page: http://www.pcb.ub.edu/xreap
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Related research

Keywords: Industrial dynamics; industrial policy; creative destruction; business demography.;

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References

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  1. Aghion, Philippe & Blundell, Richard & Griffith, Rachel & Howitt, Peter & Prantl, Susanne, 2006. "The effects of entry on incumbent innovation and productivity," Discussion Papers, Research Unit: Competition and Innovation SP II 2006-18, Social Science Research Center Berlin (WZB).
  2. André van Stel & Martin Carree, 2002. "Business ownership and sectoral growth," Scales Research Reports H200206, EIM Business and Policy Research.
  3. David B. Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital and Economic Performance," Papers on Entrepreneurship, Growth and Public Policy 2004-01, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  4. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
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