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The Black Box of Business Dynamics

Author

Listed:
  • María Callejón

    () (Facultat d'Economia i Empresa, Avda. Diagonal 690, 08034 Barcelona, Spain)

  • Vicente Ortún

    () (Department of Economics and Business, Universitat Pompeu Fabra, Barcelona, Spain)

Abstract

Research in business dynamics has been advancing rapidly in the last years but the translation of the new knowledge to industrial policy design is slow. One striking aspect in the policy area is that although research and analysis do not identify the existence of an specific optimal rate of business creation and business exit, governments everywhere have adopted business start-up support programs with the implicit principle that the more the better. The purpose of this article is to contribute to understand the implications of the available research for policy design. Economic analysis has identified firm heterogeneity as being the most salient characteristic of industrial dynamics, and so a better knowledge of the different types of entrepreneur, their behavior and their specific contribution to innovation and growth would enable us to see into the ‘black box’ of business dynamics and improve the design of appropriate public policies. The empirical analysis performed here shows that not all new business have the same impact on relevant economic variables, and that self-employment is of quite a different economic nature to that of firms with employees. It is argued that public programs should not promote indiscriminate entry but rather give priority to able entrants with survival capacities. Survival of entrants is positively related to their size at birth. Innovation and investment improve the likelihood of survival of new manufacturing start-ups. Investment in R&D increases the risk of failure in new firms, although it improves the competitiveness of incumbents.

Suggested Citation

  • María Callejón & Vicente Ortún, 2009. "The Black Box of Business Dynamics," Working Papers XREAP2009-07, Xarxa de Referència en Economia Aplicada (XREAP), revised Sep 2009.
  • Handle: RePEc:xrp:wpaper:xreap2009-07
    as

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    File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-7.pdf
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    File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-7.pdf
    File Function: Revised version, 2009
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    References listed on IDEAS

    as
    1. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    2. David Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital and Economic Performance," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 949-959.
    3. André van Stel & Martin Carree, 2002. "Business ownership and sectoral growth," Scales Research Reports H200206, EIM Business and Policy Research.
    4. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Industrial dynamics; industrial policy; creative destruction; business demography.;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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