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

  • Masso, Jaan

    ()

    (University of Tartu)

  • Eamets, Raul

    ()

    (University of Tartu)

  • Philips, Kaia

    ()

    (University of Tartu)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1243.

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Length: 42 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1243
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  1. John R. Baldwin & Wulong Gu, 2002. "Plant Turnover and Productivity Growth in Canadian Manufacturing," OECD Science, Technology and Industry Working Papers 2002/2, OECD Publishing.
  2. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  4. J. David Brown & John S. Earle, 2002. "Job Reallocation and Productivity Growth Under Alternative Economic Systems and Policies: Evidence from the Soviet Transition," Upjohn Working Papers and Journal Articles 02-88, W.E. Upjohn Institute for Employment Research.
  5. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
  6. J. David Brown & John S. Earle, 2004. "Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition," Upjohn Working Papers and Journal Articles 04-98, W.E. Upjohn Institute for Employment Research.
  7. De Loecker, Jan & Konings, Jozef, 2004. "Creative Destruction and Productivity Growth in an Emerging Economy: Evidence from Slovenian Manufacturing," CEPR Discussion Papers 4238, C.E.P.R. Discussion Papers.
  8. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  9. repec:cup:cbooks:9780521465618 is not listed on IDEAS
  10. Blomström, Magnus & Kokko, Ari, 2003. "Human Capital and Inward FDI," CEPR Discussion Papers 3762, C.E.P.R. Discussion Papers.
  11. Frederic Warzynski, 2002. "Do Schumpeterian Waves of Creative Destruction Lead to Higher Productivity? Panel Data Evidence from Poland," LICOS Discussion Papers 12002, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  12. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  14. Bee Yan Aw & Xiaomin Chen & Mark J. Roberts, 1997. "Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing," NBER Working Papers 6235, National Bureau of Economic Research, Inc.
  15. repec:cup:cbooks:9780521633574 is not listed on IDEAS
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