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Creative Destruction and Transition: The Effects of Firm Entry and Exit on Productivity Growth in Estonia

Author

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  • Masso, Jaan

    (University of Tartu)

  • Eamets, Raul

    (University of Tartu)

  • Philips, Kaia

    (University of Tartu)

Abstract

This paper presents one of the first studies of firm demographics in Estonia, particularly, on the processes of firm entry and exit as well as survival analysis of new firms. Also decompositions of productivity change into components consisting of resource reallocation, firm entry and exit, and productivity growth within continuing firms is carried out. Our results, derived from a novel database of the population of Estonian firms, show that firm turnover has been rather high in Estonia during the observed period from 1995 to 2001, resulting from low institutional entry barriers and emergence of the SME sector. The high survival rates for new firms and surviving firms’ relatively fast growth could reflect their relatively high productivity compared to incumbent firms and changes in the sectoral structure of the economy. The decomposition of productivity change shows that the high productivity growth has been mostly from within-firm productivity growth (e.g. the adoption of new production technologies and organizational changes), but the reallocation of production factors (especially the exit of low productivity units) has played an important role as well.

Suggested Citation

  • Masso, Jaan & Eamets, Raul & Philips, Kaia, 2004. "Creative Destruction and Transition: The Effects of Firm Entry and Exit on Productivity Growth in Estonia," IZA Discussion Papers 1243, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1243
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    References listed on IDEAS

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    Cited by:

    1. Canfei He & Yi Zhou, 2015. "Firm Dynamics and Regional Inequality of Productivity in China," Papers in Evolutionary Economic Geography (PEEG) 1527, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Sep 2015.
    2. Wojciech Rogowski & Jacek Socha, 2008. "Business Demography, Job Flows and Productivity in Poland’s Enterprise Sector," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 1-23.
    3. Grzegorz Go³êbiowski & Piotr Russel, 2015. "Business Dynamics In Poland In Comparison To Selected Countries," GUT FME Conference Publications, in: Blazej Prusak (ed.),ENTERPRISES IN UNSTABLE ECONOMY, chapter 14, pages 182-196, Faculty of Management and Economics, Gdansk University of Technology.
    4. World Bank, 2005. "Lithuania : Investment Climate Assessment," World Bank Publications - Reports 8568, The World Bank Group.
    5. Virginie Vial, 2008. "How Much Does Turnover Matter? Evidence from Indonesian Manufacturing Total Factor Productivity Growth, 1975-95," Oxford Development Studies, Taylor & Francis Journals, vol. 36(3), pages 295-322.
    6. Jaan Masso & Amaresh K Tiwari, 2021. "Productivity Implications Of R&D, Innovation And Capital Accumulation For Incumbents And Entrants: The Case Of Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 130, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Liis Roosaar & Jaan Masso & Urmas Varblane, 2017. "The Structural Change And Labour Productivity Of Firms: Do Changes In The Age And Wage Structure Of Employees Matter?," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 103, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    8. De Loecker, Jan & Konings, Jozef, 2006. "Job reallocation and productivity growth in a post-socialist economy: Evidence from Slovenian manufacturing," European Journal of Political Economy, Elsevier, vol. 22(2), pages 388-408, June.
    9. Jaan Masso & Amaresh K Tiwari, 2022. "Productivity Implications of R&D, Innovation, and Capital Accumulation for Incumbents and Entrants: Perspectives from a Catching-up Economy," Papers 2205.10540, arXiv.org.
    10. Alcina Nunes & Elsa de Morais Sarmento, 2010. "Business Survival in Portuguese Regions," GEMF Working Papers 2010-22, GEMF, Faculty of Economics, University of Coimbra.
    11. Elsa de Morais Sarmento & Alcina Nunes, 2012. "The Dynamics of Employer Entreprise Creation in Portugal Over the Last Two Decades: A Firm Size, Regional and Sectoral Perspective," Notas Económicas, Faculty of Economics, University of Coimbra, issue 36, pages 6-22, December.

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    More about this item

    Keywords

    firm survival; firm entry and exit; productivity decompositions; Estonia;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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