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Sunk Costs and the Growth and Failure of Small Business

  • Patrick Paul Walsh

We model the growth and failure of small business in Irish Manufacturing during the period 1973-1994. We estimate the effect of start-up size on the employment growth while controlling for the business cycle, the life cycle and the probability of business survival, amongst other factors. Learning models of firm selection and evolution are accepted in Homogenous Goods but rejected in R&D sectors. Due to high (low) entry and failure costs in R&D (Homogenous Goods) sectors, learning is undertaken ex-ante (ex-post), inducing entry with certainty (uncertainty) concerning ex-post performance, causing Gibrat's law to hold (fail).

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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 20002.

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Date of creation: 2000
Date of revision:
Handle: RePEc:tcd:tcduee:20002
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  1. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
  2. Baldwin,John R. & Gorecki,Paul, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618, October.
  3. Baldwin, John R. & Raffiquzzaman, Mohammed, 1995. "Selection Versus Evolutionary Adaptation: Learning and Post-entry Performance," Analytical Studies Branch Research Paper Series 1994072e, Statistics Canada, Analytical Studies Branch.
  4. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  5. Guimaraes, Paulo & Mata, José & Portugal, Pedro, 1995. "The Survival of New Plants: Start-up Conditions and Post-entry Evolution," CEPR Discussion Papers 1203, C.E.P.R. Discussion Papers.
  6. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  7. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  8. repec:tpr:qjecon:v:104:y:1989:i:4:p:671-98 is not listed on IDEAS
  9. McAleese, D., 1971. "Effective Tariffs and the Structure of Industrial Protection in Ireland," Research Series, Economic and Social Research Institute (ESRI), number GRS62.
  10. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  11. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  12. Audretsch, David B & Klomp, Luuk & Thurik, A R Roy, 1997. "Do Services Differ From Manufacturing? The Post-Entry Performance of Firms in Dutch Services," CEPR Discussion Papers 1718, C.E.P.R. Discussion Papers.
  13. Davies, Stephen & Lyons, Bruce, 1996. "Industrial Organization in the European Union: Structure, Strategy, and the Competitive Mechanism," OUP Catalogue, Oxford University Press, number 9780198289739.
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