Abstract
In a dynamic setting, every firm can be regarded as a “business experiment” with the objective to search and explore new business opportunities. It is suggested that the growth of an industry is enhanced by new-firm entry, since a positive correlation between the number of successes, i.e. fast-growing firms, and the number of business experiments is to be expected. Exit is necessary to sort out the firms that the market rejects. Hence, it is rather the entry and exit of firms that jointly should have a positive effect on growth, rather than the number of entries in isolation. This paper tests the hypothesis that a high turnover rate of firms has no, or a negative, effect on industry growth. The analysis is based on an extensive data set covering all Swedish IT firms that existed between 1994 and 1998. The turnover rate of firms is found to have a significantly positive effect on industry growth.
Similar content being viewed by others
References
Zoltan Acs (Eds) (1996) Small Firms and Economic Growth: Volume I and II Edward Elgar Cheltenham
Zoltan Acs Carlsson Bo Karlsson Charlie (1999) Entrepreneurship, Small and Medium-Seized Enterprises and the Macroeconomy Cambridge Universit Press Cambridge
Paul Almeida (1999) ’Semiconductor Startups and the Exploration of New Technological Territory’ Acs Zoltan (Eds) Are Small Firms Important? Their Role and Impact. Kluwer Academic Publishers Dordrecht 39–50
Paul Almeida Kogut Bruce (1997) ArticleTitle’The Exploration of Technological Diversity and Geographical Localization in Innovation’ Small Business Economics. 9 IssueID1 21–31 Occurrence Handle10.1023/A:1007995512597
David Audretsch (1995) Innovation and Industry Evolution MIT Press Cambridge
David Audretsch (2002) ArticleTitle’The Dynamic Role of Small Firms: Evidence from the U.S.’ Small Business Economics 18 IssueID1–3 13–40 Occurrence Handle10.1023/A:1015105222884
David Audretsch Fritsch Michael (1996) ’Creative Destruction: Turbulence and Economic Growth in Germany’ Helmstädter Ernst Perlman Mark (Eds) Behavioral Norms, Technological Progress, and Economic Dynamics: Studies in Schumpeterian Economics. The University of Michigan Press Ann Arbor 137–150
David Audretsch Fritsch Michael (2002) ArticleTitle’Growth Regimes over Time and Space’ Regional Studies 36 IssueID2 113–124 Occurrence Handle10.1080/00343400220121909
John Baldwin (1995) The Dynamics of Industrial Competition: A North American Perspective Cambridge University Press Cambridge
David Birch (1979) ’The Job Generation Process’. MIT Program on Neighbourhood and Regional Change (March) MIT Cambridge
David Birch Medoff James (1994) ’Gazelles’ Solmon Lewis Levenson Alec (Eds) Labour Markets, Employment Policy and Job Creation. Westview Press Boulder and London
Maria Callejón Agusti Segarra (1999) ArticleTitle’Business Dynamics and Efficiency in Industries and Regions: The Case of Spain’ Small Business Economics 13 IssueID4 253–271 Occurrence Handle10.1023/A:1008015317323
Richard Caves (1998) ArticleTitle’Industrial Organization and New Findings on the Turnover and Mobility of Firms’ Journal of Economic Literature 36 IssueID4 1947–1982
Carl Dahlman (1979) ArticleTitle’The Problem of Externality’ Journal of Law and Economics 22 IssueID1 141–162 Occurrence Handle10.1086/466936
Per Davidsson Lindmark Leif Olofsson Christer (1994a) Dynamiken i svenskt näringsliv Studentlitteratur Lund
Per Davidsson Lindmark Leif Olofsson Christer (1994b) ArticleTitle’New Firm Formation and Regional Development in Sweden’ Regional Studies 28 IssueID4 395–410
Per Davidsson Leif Lindmark Olofsson Christer (1996) Näringslivsdynamik under 90-talet NUTEK Stockholm
Gunnar Eliasson (1996) Firm Objectives, Controls and Organizations. The Use of Information and the Transfer of Knowledge within the Firm Kluwer Academic Publishers Dordrecht
Michael Fritsch (1996) ArticleTitle’Turbulence and Growth in West Germany: A Comparison of Evidence by Regions and Industries’ Review of Industrial Organization 11 IssueID2 231–251 Occurrence Handle10.1007/BF00157669
Paul Geroski (1995) ArticleTitle’What Do We Know About Entry?’ International Journal of Industrial Organization 13 IssueID4 421–440 Occurrence Handle10.1016/0167-7187(95)00498-X
Dan Johansson (2001) The Dynamics of Firm and Industry Growth: The Swedish Computing and Communications Industry, Doctoral Thesis in Industrial Economics Royal Institute of Technology Stockholm
Bruce Kirchhoff (1994) Entrepreneurship and Dynamic Capitalism Praeger London
Gary Loveman Sengenberger Werner (1991) ArticleTitle’The Re- Emergence of Small-Scale Production An International Comparison’. Small Business Economics 3 IssueID1 1–37 Occurrence Handle10.1007/BF00389842
Terry Moe (1997) ’The Positive Theory of Public Bureaucracy’ Mueller Dennis (Eds) Perspectives on Public Choice: A Handbook. Cambridge University Press Cambridge 455–480
Richard Nelson Winter Sidney (1982) An Evolutionary Theory of Economic Change Cambridge University Press Cambridge
Paul Reynolds Storey David Westhead Paul (1994) ArticleTitle’Cross National Comparison of the Variation in the Firm Formation Rates’ Regional Studies 28 IssueID4 443–456
Joseph Schumpeter (1934/1912/1911) The Theory of Economic Development Transaction Publishers London
Joseph Schumpeter (1942) Capitalism, Socialism and Democracy Harper & Row New York
John Wallis North Douglass (1986) ’Measuring the Transaction Sector in the American American Economy’ Engerman Stanley Gallman Robert (Eds) Long Term Factors in American Economic Growth. Chicago University Press Chicago 95–148
Ronald Wintrobe (1997) ’Modern Bureaucratic Theory’ Mueller Dennis (Eds) Perspective on Public Choice: A Handbook. Cambridge University Press Cambridge 429–454
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Johansson, D. The Turnover of Firms and Industry Growth. Small Bus Econ 24, 487–495 (2005). https://doi.org/10.1007/s11187-005-6446-y
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/s11187-005-6446-y