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Business dynamics and employment growth: A cross-country analysis

Author

Listed:
  • André van Stel
  • Bart Diephuis

Abstract

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 multiple 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 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.

Suggested Citation

  • André van Stel & Bart Diephuis, 2004. "Business dynamics and employment growth: A cross-country analysis," Scales Research Reports H200310, EIM Business and Policy Research.
    • Handle: RePEc:eim:papers:h200310
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    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; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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