Abstract
High rates of firm births and deaths are a pervasive phenomenon across industries and territories. Most studies have related the great turbulence at the fringe of practically all manufacturing industries to positive effects on the long-run performance of industries. According to these views business turbulence, although it has a relatively small incidence on net entry, leads to allocative improvement and stimulates innovation. The existing set of empirical studies does not reach clear conclusions, however, and many questions are still open. Our contribution analyses the relationship between business dynamics in manufacturing and the growth of total factor productivity in industries and regions. After a review of current literature on entry and exit it is argued that most models are tailored to suit the processes observed in industries and regions that are near the technological frontier, and we propose an approach that could be more representative of middle range economies such as Spain. According to this approach new firms are seen more as users of innovations than producers of innovations. We adopt a model based on a vintage capital framework in which new entrants embody the edge technologies available and exiting businesses are supposed to represent the most marginal obsolete plants. Both industries and regions are represented by a Hall's type production function which controls for imperfect competition and economies of scale. The results show that both entry and exit rates contribute positively to the growth of total factor productivity in industries and in regions.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Abernathy, W. and J. Utterback, 1978, 'Patterns of Industrial Innovation', Technology Review 80 , 41–47.
Acs, Z. J. and D. B. Audretsch, 1990,Innovation and Small Firms, The MIT Press.
Audretsch, D. B., 1995, Innovation and Industry Evolution, The MIT Press.
Audretsch, D. B., 1997, 'Technological Regimes, Industrial Demography and the Evolution of Industrial Structures', Industrial and Corporate Change 6(1), 49–82.
Baldwin, J. R., 1995, The Dynamics of Industrial Competition, Cambridge University Press.
Baldwin, J. R. and P. K. Gorecki, 1991a, 'Entry, Exit, and Productivity Growth', in P. A. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison, Basil Blackwell.
Baldwin, J. R. and P. K. Gorecki, 1991b, 'Firm Entry and Exit in the Canadian Manufacturing Sector: 1970–1982', Canadian Journal of Economics 24(2), 302–323.
Baumol, W. J., J. Panzar and R. D. Willing, 1982, The Theory of Contestable Markets and Industry Structure, San Diego: Harcourt Brace Jovanovich.
Bhide, A., 1994, 'How Entrepreneurs Craft Strategies that Work', Harvard Business Review 72(2), 150–163.
Caballero, R. J. and R. K. Lyons, 1990, 'Internal versus External Economies in European Industry', European Economic Review 34 , 805–830.
Cable, J. and J. Schwalbach, 1991, 'International Comparisons of Entry and Exit', in P. A. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison, Basil Blackwell.
Campbell, J. R., 1998, 'Entry, Exit, Embodied Technology, and Business Cycles', Review of Economic Dynamics 1(2), 371–408.
Costa, M. T. et al., 1993, Cooperación entre empresas y sistemas productivos locales, Madrid: Instituto de la Pequeña y Mediana Empresa Industrial (IMPI).
Dosi, G.; O. Marsili, L. Orsenigo and R. Salvatore, 1993, 'Learning; Market Selection and the Evolution of Industrial Structures', CCC Working Paper No. 93-9, University of California at Berkeley.
Dunne, T. and M. J. Roberts, 1991, 'Producer Turnover in U.S. Manufacturing Industries', in P. A. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison, Basil Blackwell.
European Network for SME Research: 1996, The European Observatory for SMEs.
Fariñas, J. C. et al., 1992, TLa PYME industrial en España, Madrid: Editorial Civitas.
Fariñas, J. C. et al., 1996, La empresa industrial en la década de los noventa: estructura de mercado y dinámica empresarial, DT.9613, Fundación Empresa Pública.
Geroski, P. A., 1989, 'Entry, Innovation, and Productivity Growth', Review of Economics and Statistics 71, 572–578.
Geroski, P. A., 1991a, 'Domestic and Foreign Entry in the United Kingdom: 1983–1984', in P. A. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison, Basil Blackwell.
Geroski, P. A., (1991b, Innovation and Sectoral Sources of U.K. Productivity Growth', Economic Journal 101, 1438-1051.
Geroski, P., 1992, 'Entry, Exit and Structural Adjustment in European Industry', in K. Cool, D. Neven and I. Walter (eds.), European Industrial Restructuring in the 1990s, McMillan.
Griliches, Z., 1994, 'Productivity, R & D, and the Data Constraint', American Economic Review 84, 1–23.
Hall, R. E., 1986, 'Market Structure and Macroeconomic Fluctuations', Brookings Papers on Economic Activity 2, 285–322.
Hirschman, A., 1970, Exit, Voice and Loyalty, Cambridge, MA: Harvard University Press.
Jovanovic, B., 1982, 'Selection and the Evolution of Industry', Econometrica 50(3), 649–670.
Klemperer, P., 1988, 'Welfare Effects of Entry into Markets with Switching Costs', The Journal of Industrial Economics 37(2), 159–165.
Klepper, S., 1996, 'Entry, Exit, Growth, and Innovation over the Product Cycle', American Economic Review 86(3), 562–583.
Lorenzo, M. J., 1992, Flujos de entradas y salidas de establecimientos en el sector manufacturero español, DT 9203, Fundación Empresa Pública.
Maddison, A., 1987, 'Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment', Journal of Economic Literature 25 , 649–698.
Malerba, F. y L. Orsenigo, 1996, 'The Dynamics and Evolution of Industries', Industrial and Corporate Change 5(1), 51–87.
Marshall, A.: 1919, Industry and Trade, Great Britain: Macmillan and C.
Martín, A., 1992, Los determinantes del crecimiento de la productividad en la industria española, DT 9204, Fundación Empresa Pública.
Mueller, D., 1991, 'Entry, Exit, and the Competitive Process', in P. A. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: an International Comparison, Basil Blackwell.
Nachbar, J. H., B. C. Petersen and I. Hwang, 1998, 'Sunk Costs, Accomodation, and the Welfare Effects of Entry', The Journal of Industrial Economics 47(3) 317–332.
Nelson, R y S. Winter, 1982, An Evolutionary Theory of Economic Change, Harvard University Press.
Olley, S. and A. Pakes, 1996, 'The Dynamics of Productivity in the Telecommunications Equipment Industry', Econometrica 64(6), 1263–1297.
Orr, D., 1974, 'The Determinants of Entry: A Study of the Canadian Manufacturing Industries', Review of Economics and Statistics 56(1), 58–66.
Pavitt, K., 1984, 'Sectoral Patterns of Technical Change', Research Policy 13 , 343–373.
Reynolds, P., 1994, 'Autonomous Firm Dynamics and Economic Growth in the United States, 1986–1990', Regional Studies 28(4), 429–442.
Reynolds, P., D. J. Storey and P. Westhead, 1994, 'Crossnational Comparisons of the Variation in New Firm Formation Rates', Regional Studies 28(4), 443–456.
Saxenian, A. L., 1990, 'Regional Networks and the Resurgence of Silicon Valley', California Management Review 33(1), 89–112.
Stigler, G., 1951, 'The Division of Labour is Limited by the Extent of the Market', Journal of Political Economy 59, 185–193.
Wolff, E. N., 1991, 'Capital Formation and Productivity Convergence Over the Long Term', American Economic Review 81 , 565–579.
Yorukoglu, M., 1998, 'The Information Technology Productivity Paradox', Review of Economic Dynamics 1(2), 551–592.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Callejón, M., Segarra, A. Business Dynamics and Efficiency in Industries and Regions: The Case of Spain. Small Business Economics 13, 253–271 (1999). https://doi.org/10.1023/A:1008015317323
Issue Date:
DOI: https://doi.org/10.1023/A:1008015317323