IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/104502.html
   My bibliography  Save this paper

Turbulence in startups: Effect of COVID-19 lockdown on creation of new firms and its capital

Author

Listed:
  • Camino-Mogro, Segundo

Abstract

Business creation is an important measure of real economic activity because it shows the dynamics with which new firms are born, create jobs, move their capital, innovate and compete with old firms. In this sense, this paper analyzes the impact of the lockdown policies implemented to stop the spread of the COVID-19 on the creation of new formal firms in Ecuador. I use a regression discontinuity in time (RDiT) design jointly with official administrative real-time data, and find an overall large decrease in the creation of new formal firms (-73%) but also in the total amount of capital coming from the new formal firms (-40%). Additionally, my results suggest that the negative impacts of the COVID-19 lockdown on creation of new formal firms do not diminish over the time, in particular after one month and a half. Finally, I show that the March 16 lockdown measures help to explain only the observed changes in creation of new formal firms occurred the day after their announcement and not other changes that predate or follow these announcements. The main conclusion is that lockdown policies have a negative impact on firm creation, result that is of high policy relevance which can be a tool to design business attraction policies.

Suggested Citation

  • Camino-Mogro, Segundo, 2020. "Turbulence in startups: Effect of COVID-19 lockdown on creation of new firms and its capital," MPRA Paper 104502, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104502
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/104502/1/MPRA_paper_104502.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evan F. Koenig & Sheila Dolmas & Jeremy Piger, 2003. "The Use and Abuse of Real-Time Data in Economic Forecasting," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 618-628, August.
    2. Couch, Kenneth A. & Fairlie, Robert W. & Xu, Huanan, 2020. "Early evidence of the impacts of COVID-19 on minority unemployment," Journal of Public Economics, Elsevier, vol. 192(C).
    3. John Haltiwanger & Ron S. Jarmin & Robert Kulick & Javier Miranda, 2016. "High Growth Young Firms: Contribution to Job, Output, and Productivity Growth," NBER Chapters, in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 11-62, National Bureau of Economic Research, Inc.
    4. Carrillo-Maldonado, Paul & Díaz-Cassou, Javier, 2023. "An anatomy of external shocks in the Andean region," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    5. Catherine Hausman & David S. Rapson, 2018. "Regression Discontinuity in Time: Considerations for Empirical Applications," Annual Review of Resource Economics, Annual Reviews, vol. 10(1), pages 533-552, October.
    6. Gian Luca Clementi & Berardino Palazzo, 2016. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 1-41, July.
    7. Barnes, Stephen R. & Beland, Louis-Philippe & Huh, Jason & Kim, Dongwoo, 2020. "The Effect of COVID-19 Lockdown on Mobility and Traffic Accidents: Evidence from Louisiana," GLO Discussion Paper Series 616, Global Labor Organization (GLO).
    8. Mauro Caselli & Andrea Fracasso & Sergio Scicchitano, 2020. "From the lockdown to the new normal: An analysis of the limitations to individual mobility in Italy following the Covid-19 crisis," Discussion Paper series in Regional Science & Economic Geography 2020-07, Gran Sasso Science Institute, Social Sciences, revised Oct 2020.
    9. Petr Sedláček & Vincent Sterk, 2017. "The Growth Potential of Startups over the Business Cycle," American Economic Review, American Economic Association, vol. 107(10), pages 3182-3210, October.
    10. Harold L. Cole & Lee E. Ohanian & Álvaro José Riascos & James A. Schmitz, 2006. "Latin America in the rearview mirror," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 30(Sep).
    11. Lee, Yoonsoo & Mukoyama, Toshihiko, 2015. "Entry and exit of manufacturing plants over the business cycle," European Economic Review, Elsevier, vol. 77(C), pages 20-27.
    12. McQueen, Grant & Thorley, Steven, 1993. "Asymmetric business cycle turning points," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 341-362, June.
    13. Jeffrey Campbell, 1998. "Entry, Exit, Embodied Technology, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 371-408, April.
    14. Jose Asturias & Sewon Hur & Timothy J. Kehoe & Kim J. Ruhl, 2023. "Firm Entry and Exit and Aggregate Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(1), pages 48-105, January.
    15. Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
    16. Roberto M. Samaniego, 2008. "Entry, Exit and Business Cycles in a General Equilibrium Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 529-541, July.
    17. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372, National Bureau of Economic Research, Inc.
    18. Steve Cicala & Stephen P. Holland & Erin T. Mansur & Nicholas Z. Muller & Andrew J. Yates, 2020. "Expected Health Effects of Reduced Air Pollution from COVID-19 Social Distancing," NBER Working Papers 27135, National Bureau of Economic Research, Inc.
    19. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    20. Cristiana Benedetti-Fasil & Petr Sedláček & Vincent Sterk, 2022. "Startups and employment following the COVID-19 pandemic: a calculator," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(111), pages 507-533.
    21. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
    22. Ricardo J. Caballero & Mohamad L. Hammour, 2005. "The Cost of Recessions Revisited: A Reverse-Liquidationist View," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 313-341.
    23. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    24. Segundo Camino-Mogro & Grace Armijos-Bravo & Gino Cornejo-Marcos, 2018. "Productividad Total de los Factores en el sector manufacturero ecuatoriano: evidencia a nivel de empresas," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 41(117), pages 241-261, Noviembre.
    25. Sedláček, Petr, 2020. "Lost generations of firms and aggregate labor market dynamics," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 16-31.
    26. Hai-Anh H. Dang & Trong-Anh Trinh, 2022. "The Beneficial Impacts of COVID-19 Lockdowns on Air Pollution: Evidence from Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 58(10), pages 1917-1933, October.
    27. François Gourio & Todd Messer & Michael Siemer, 2016. "Firm Entry and Macroeconomic Dynamics: A State-Level Analysis," American Economic Review, American Economic Association, vol. 106(5), pages 214-218, May.
    28. Benjamin Wild Pugsley & Ay’egul ahin, 2019. "Grown-up Business Cycles," The Review of Financial Studies, Society for Financial Studies, vol. 32(3), pages 1102-1147.
    29. Michael L. Anderson, 2014. "Subways, Strikes, and Slowdowns: The Impacts of Public Transit on Traffic Congestion," American Economic Review, American Economic Association, vol. 104(9), pages 2763-2796, September.
    30. Maximilian Auffhammer & Ryan Kellogg, 2011. "Clearing the Air? The Effects of Gasoline Content Regulation on Air Quality," American Economic Review, American Economic Association, vol. 101(6), pages 2687-2722, October.
    31. Christopher Adam & Mark Henstridge & Stevan Lee, 2020. "After the lockdown: macroeconomic adjustment to the COVID-19 pandemic in sub-Saharan Africa," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(Supplemen), pages 338-358.
    32. -, 2020. "Sectors and businesses facing COVID-19: Emergency and reactivation," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 45736.
    33. Huayu Shen & Mengyao Fu & Hongyu Pan & Zhongfu Yu & Yongquan Chen, 2020. "The Impact of the COVID-19 Pandemic on Firm Performance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2213-2230, August.
    34. Paul Carrillo Maldonado & María Cecilia Deza & Segundo Camino Mogro, 2020. "Una radiografía a las empresas ecuatorianas antes del COVID-19," X-pedientes_Economicos, X-pedientes Económicos, vol. 4(9), pages 83-117.
    35. Busso Matias & Madrigal Lucia & Pagés Carmen, 2013. "Productivity and resource misallocation in Latin America1)," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 903-932, June.
    36. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
    37. Christopher Adam & Mark Henstridge & Stevan Lee, 0. "After the lockdown: macroeconomic adjustment to the COVID-19 pandemic in sub-Saharan Africa," Oxford Review of Economic Policy, Oxford University Press, vol. 36(Supplemen), pages 338-358.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Terstriep, Judith & David, Alexandra & Ruthemeier, Alexander & Elo, Maria, 2022. "The role of local embeddedness of transnational migrant start-ups in the COVID-19 crises: Examples from the Berlin start-up ecosystem," IAT Discussion Papers 22/05, Institut Arbeit und Technik (IAT), Westfälische Hochschule, University of Applied Sciences.
    2. Koppa, Vijetha & West, Jeremy, 2022. "School reopenings, COVID-19, and employment," Economics Letters, Elsevier, vol. 212(C).
    3. Brault, Julien, 2023. "Recent trends in EU corporate demography and policy: COVID and beyond," EIF Working Paper Series 2023/90, European Investment Fund (EIF).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Camino-Mogro, Segundo & Armijos, Mary, 2020. "The effects of COVID-19 lockdown on Foreign Direct Investment: evidence from Ecuadorian firms," MPRA Paper 104821, University Library of Munich, Germany.
    2. Ia Vardishvili, 2020. "Entry Decision, the Option to Delay Entry, and Business Cycles," Auburn Economics Working Paper Series auwp2020-07, Department of Economics, Auburn University.
    3. Segundo Camino‐Mogro & Mary Armijos, 2022. "Short‐term effects of COVID‐19 lockdown on foreign direct investment: Evidence from Ecuadorian firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(4), pages 715-736, May.
    4. Cavallari, Lilia & Romano, Simone & Naticchioni, Paolo, 2021. "The original sin: Firms’ dynamics and the life-cycle consequences of economic conditions at birth," European Economic Review, Elsevier, vol. 138(C).
    5. Peter Bauer & Igor Fedotenkov & Aurelien Genty & Issam Hallak & Peter Harasztosi & David Martinez Turegano & David Nguyen & Nadir Preziosi & Ana Rincon-Aznar & Miguel Sanchez Martinez, 2020. "Productivity in Europe: Trends and drivers in a service-based economy," JRC Research Reports JRC119785, Joint Research Centre.
    6. Tian, Can, 2018. "Firm-level entry and exit dynamics over the business cycles," European Economic Review, Elsevier, vol. 102(C), pages 298-326.
    7. Lee, Yoonsoo & Mukoyama, Toshihiko, 2018. "A model of entry, exit, and plant-level dynamics over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 96(C), pages 1-25.
    8. Pavol Majher, 2015. "Firm entry and exit, investment irreversibility, and business cycle dynamics," Vienna Economics Papers 1513, University of Vienna, Department of Economics.
    9. Joonkyu Choi, 2018. "Entrepreneurial Risk-Taking, Young Firm Dynamics, and Aggregate Implications," 2018 Meeting Papers 1018, Society for Economic Dynamics.
    10. Masashige Hamano & Francesco Zanetti, 2017. "Endogenous Turnover and Macroeconomic Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 263-279, October.
    11. Marcin Bielecki, 2022. "Long Shadows of Financial Shocks: An Endogenous Growth Perspective," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 1-23.
    12. Beiler, Hendrik, 2017. "Do you dare? The effect of economic conditions on entrepreneurship among college graduates," Labour Economics, Elsevier, vol. 47(C), pages 64-74.
    13. Petr Sedláček & Vincent Sterk, 2017. "The Growth Potential of Startups over the Business Cycle," American Economic Review, American Economic Association, vol. 107(10), pages 3182-3210, October.
    14. Tian, Can, 2022. "Learning and firm dynamics in a stochastic equilibrium," Journal of Economic Theory, Elsevier, vol. 203(C).
    15. Tian, Can, 2015. "Riskiness, endogenous productivity dispersion and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 227-249.
    16. Pavol Majher, 2015. "Firm entry and exit, investment irreversibility, and business cycle dynamics," Vienna Economics Papers vie1513, University of Vienna, Department of Economics.
    17. Alon, Titan & Berger, David & Dent, Robert & Pugsley, Benjamin, 2018. "Older and slower: The startup deficit’s lasting effects on aggregate productivity growth," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 68-85.
    18. Bernstein, Shai & Colonnelli, Emanuele & Malacrino, Davide & McQuade, Tim, 2022. "Who creates new firms when local opportunities arise?," Journal of Financial Economics, Elsevier, vol. 143(1), pages 107-130.
    19. Murmann, Martin, 2017. "The Growth and Human Capital Structure of New Firms over the Business Cycle," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168290, Verein für Socialpolitik / German Economic Association.
    20. Pfeifer, Gregor & Stockburger, Mirjam, 2023. "The morning after: Prescription-free access to emergency contraceptive pills," Journal of Health Economics, Elsevier, vol. 91(C).

    More about this item

    Keywords

    COVID-19; Lockdown; New firms; Regression Discontinuity; Ecuador;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:104502. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.