Is Subsidizing Entry An Optimal Policy?
Public subsidies in support of new firm foundation are among the most frequently used instruments of industrial policy in the Euro zone. This paper analyses their effectiveness and efficiency vis-à-vis some features of the overall process of industry dynamics in Italian manufacturing. To this end, the survival and growth patterns of new small firms are investigated using a unique dataset on electrical and electronic engineering in Italy. As regards survival, our results confirm the findings of other studies, namely that the hazard rates are particularly high in the early stages of firm’s life cycle. As far as growth is concerned, the study’s main finding is that Gibrat’s Law fails to hold in the years immediately following start-up, when smaller firms must ‘rush’ in order to achieve a size large enough to enhance their likelihood of survival; conversely, in later stages of firm’s life cycle the Law cannot be rejected. These results radically question the use of subsidies as an optimal policy for the support of new entries, since the subsidy brings about a major bias in the process of market selection (including substitution and deadweight effects) and hampers the post-entry scale adjustment of newborn firms.
|Date of creation:||2000|
|Contact details of provider:|| Postal: Piazza Scaravilli, 2, and Strada Maggiore, 45, 40125 Bologna|
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
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.:
- Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 115-140, June.
- Beesley, M E & Hamilton, R T, 1984. "Small Firms' Seedbed Role and the Concept of Turbulence," Journal of Industrial Economics, Wiley Blackwell, vol. 33(2), pages 217-231, December.
- Evans, David S, 1987.
"The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 35(4), pages 567-581, June.
- Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
- Baldwin,John R. & Gorecki,Paul, 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574, December.
- Baldwin,John R. & Gorecki,Paul, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618, December.
- Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
- Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
- Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
- Evans, David S., 1986. "Tests of Alternative Theories of Firm Growth," Working Papers 86-36, C.V. Starr Center for Applied Economics, New York University.
- Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
- Chesher, Andrew, 1979. "Testing the Law of Proportionate Effect," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 403-411, June.
- Boeri, Tito & Cramer, Ulrich, 1992. "Employment growth, incumbents and entrants : Evidence from Germany," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 545-565, December.
- Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
- Murray Z. Frank, 1988. "An Intertemporal Model of Industrial Exit," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 333-344.
- Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, September.
- Audretsch, David B. & Santarelli, Enrico & Vivarelli, Marco, 1999. "Start-up size and industrial dynamics: some evidence from Italian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 965-983, October.
- Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February.
- Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
- Audretsch, David B, 1991. "New-Firm Survival and the Technological Regime," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 441-450, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:378. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dipartimento Scienze Economiche, Universita' di Bologna)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.