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Interdependencies in the Dynamics of Firm Entry and Exit


  • Nyström, Kristina

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)


This paper investigates the dynamics of firm entry and exit with a focus on differences between industrial sectors. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated to each other, the multiplier effect and the competition effect. This paper intends to investigate which force that is the predominant one. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC-level, for firms with more than five employees during the period 1991-2000. A dynamic panel data approach as suggested by Anderson and Hsio (1981) and Arellano and Bond (1991) are used in estimating the relationships. The empirical results find some evidence of the multiplier effect being the predominant effect explaining entry while competition effects are more important for explaining exit patterns.

Suggested Citation

  • Nyström, Kristina, 2005. "Interdependencies in the Dynamics of Firm Entry and Exit," Working Paper Series in Economics and Institutions of Innovation 28, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0028

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    References listed on IDEAS

    1. Marcus Dejardin, 2004. "Sectoral and cross-sectoral effects of retailing firm demographies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 38(2), pages 311-334, June.
    2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    3. Johnson, Peter & Parker, Simon, 1994. "The Interrelationships between Births and Deaths," Small Business Economics, Springer, vol. 6(4), pages 283-290, August.
    4. Dunne, T. & Roberts, M.J., 1989. "Variation In Producer Turnover Across U.S. Manufacturing Industries," Papers 12-89-2, Pennsylvania State - Department of Economics.
    5. Kangasharju, Aki & Moisio, Antti, 1998. "Births-Deaths Nexus of Firms: Estimating VAR with Panel Data," Small Business Economics, Springer, vol. 11(4), pages 303-313, December.
    6. Michael Fritsch & Pamela Mueller, 2004. "The Effects of New Business Formation on Regional Development over Time," Papers on Entrepreneurship, Growth and Public Policy 2004-36, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    7. Michael Fritsch & Pamela Mueller, 2004. "Effects of New Business Formation on Regional Development over Time," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 961-975.
    8. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    9. Catherine Armington & Zoltan Acs, 2002. "The Determinants of Regional Variation in New Firm Formation," Regional Studies, Taylor & Francis Journals, vol. 36(1), pages 33-45.
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    Cited by:

    1. Marcelo Resende & Vicente Cardoso & Luis Otávio Façanha, 2016. "Determinants of survival of newly created SMEs in the Brazilian manufacturing industry: an econometric study," Empirical Economics, Springer, vol. 50(4), pages 1255-1274, June.
    2. Marcelo Resende & Eduardo P. Ribeiro & Rodrigo Zeidan, 2015. "Dynamic Entry and Exit Linkages in the Brazilian Manufacturing Industry: An Econometric Investigation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 379-392, November.

    More about this item


    Entry; exit; dynamic panel data;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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