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Creative Destruction And Transition: The Effects Of Firm Entry And Exit On Productivity Growth In Estonia

  • Jaan Masso

    (School of Slavonic and East European Studies, University College London)

  • Raul Eamets

    (School of Slavonic and East European Studies, University College London)

  • Kaia Philips

    (School of Slavonic and East European Studies, University College London)

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 CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL) in its series Working Papers with number 38.

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Length: 40 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:see:wpaper:38
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  1. Baldwin,John R. & Gorecki,Paul, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618, October.
  2. J. David Brown & John Earle, 2004. "Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition," CERT Discussion Papers 0404, Centre for Economic Reform and Transformation, Heriot Watt University.
  3. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  4. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
  5. 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.
  6. 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.
  7. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, 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. Blomström, Magnus & Kokko, Ari, 2003. "Human Capital and Inward FDI," EIJS Working Paper Series 167, The European Institute of Japanese Studies.
  10. Frederic Warzynski, 2002. "Do Schumpeterian Waves of Creative Destruction Lead to Higher Productivity? Panel Data Evidence from Poland," William Davidson Institute Working Papers Series 485, William Davidson Institute at the University of Michigan.
  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  12. Brown, J. David & Earle, John S., 2002. "Job Reallocation and Productivity Growth Under Alternative Economic Systems and Policies: Evidence from the Soviet Transition," IZA Discussion Papers 644, Institute for the Study of Labor (IZA).
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  14. 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.
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