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Open Economies Review

, Volume 24, Issue 5, pp 963–976 | Cite as

Business Conditions and Exit Risks Across Countries

  • Michael PflügerEmail author
  • Stephan Russek
Research Article

Abstract

The risk of market exit that business firms face is significant and differs widely across countries. This paper explores the links between countries’ business conditions and the exit risk at the country level. We set up a general equilibrium model which allows us to derive sharp predictions concerning how key factors which shape a country’s business and trade environment impact on the exit risk of firms which operate in these environments. The model is able to explain the negative correlation between countries’ average labor productivity and the perceived risks of exit borne out in the facts and its predictions accord with evidence on country differences in business conditions.

Keywords

Firm death Firm heterogeneity Business conditions Firm productivity Trade integration 

JEL Classification

F12 F13 F15 L25 

Notes

Acknowledgements

We thank Daniel Bernhofen, Rainald Borck, Carsten Eckel, Andreas Haufler, Christian Holzner, Richard Kneller, Johann Lambsdorff, Dominika Langenmayr, Jörg Lingens, Philipp Schröder, Jens Südekum, Zhihong Yu, the participants of workshops and conferences in Aarhus (School of Business), Glasgow (EEA), Lausanne (ETSG), Münster, Munich and Nottingham (GEP) and two anonymous referees for their stimulating comments on previous versions of this paper. Financial support from Deutsche Forschungsgemeinschaft (DFG) through PF 360/5–1 is gratefully acknowledged.

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.DIW Berlin and IZAUniversity of WürzburgWürzburgGermany
  2. 2.Federal Ministry for Economic Cooperation and Development (BMZ)BonnGermany

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