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Determinants of the Prevalence of Start-ups and High-Growth Firms

  • Davidsson, Per

    ()

    (Jönköping International Business School)

  • Henrekson, Magnus

    ()

    (Dept. of Economics, Stockholm School of Economics)

The purpose of this study is to identify key institutional determinants of firm emergence and growth. We do this using various types of data from Sweden, a country, which until a recent turnaround, experienced a prolonged period of substandard economic performance. A characterization of a number of institutions and policy measures shows that they are likely to have contributed to an environment that discourages entrepreneurial activity and firm growth. Aspects dealt with include: missing arenas for entrepreneurship in the care and sectors and for household-related services, taxation of entrepreneurial income, incentives for wealth accumulation, wage-setting institutions and labor market regulations. Using original data, we provide evidence of a low prevalence of nascent entrepreneurs and a small net employment contribution by high-growth firms. These micro-level findings are consistent with the observed weak performance at the macro level. We admit that indisputable evidence for the effects of institutional arrangements is almost impossible to establish. However, the consistency of our theoretical arguments and empirical data makes a strong case for the notion that the Swedish case illustrates the costs of giving too little weight to economic renewal in policy making.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 381.

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Length: 37 pages
Date of creation: 03 May 2000
Date of revision: 26 May 2002
Publication status: Published in Small Business Economics, 2002, pages 81-104.
Handle: RePEc:hhs:hastef:0381
Note: Forthcoming in Small Business Economics, Vol. 16, 2001
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
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  10. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
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  12. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
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  23. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
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