Abstract
This paper investigates dynamic interrelationships between the births and deaths of firms at the level of the 88 Finnish subregions during 1989–1993. The births-deaths nexus of firms is analysed using vector autoregressions (VAR) and an instrumental variable estimator. The main findings are: first, that the firm births equation has a two-year lag structure, which means that firm deaths cause firm births, and firm births cause subsequent births following two- year lags; and second, that according to the firm deaths equation, which has a one-year lag structure, firm births do not cause firm deaths, but firm deaths cause subsequent deaths. A further finding is that the use of the ordinary least-squares estimator produces inconsistent, and clearly different results from those produced by the instrumental variable estimator.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Armstrong, H. and J. Taylor, 1993, Regional Economics and Policy, Cornwall: Harvester, Wheatsheaf, Padstow.
Audretsch, D. B. and M. Fritsch, 1994, ‘The Geography of Firm Births in Germany’, Regional Studies 28(4), 359–365.
Bennet, R., 1989, Small Business Survival, London: Pitman.
Carree, M. and R. Thurik, 1993, Entry and Exit in Retailing: Incentives, Barriers, Displacement and Replacement, Centre for Advanced Small Business Economics, Erasmus University Rotterdam, and Department of Fundamental Research, Research Institute for Small and Medium-Sized Businesses (mimeo).
Chamberlain, G., 1983, ‘Panel Data’, in Z. Griliches and M. Intrilligator (eds.), The Handbook of Econometrics, vol. 2, Amsterdam: North-Holland Publishing Co.
Gibb, A. A., 1990, Small Business in the U.K., State of Development, Expectations and Policy, Durham University Small Business School, Occasional Papers No. 9094.
Granger, C. W. J., 1969, ‘Investigating Causal Relations by Econometric Models and Cross-Spectral Methods’, Econometrica 56, 424–438.
Holtz-Eakin, D., W. Newey and H. S. Rosen, 1988, ‘Estimating Vector Autoregressions With Panel Data’, Econometrica 56, 1371–1395.
Holtz-Eakin, D., W. Newey and H. S. Rosen, 1989, ‘The Revenues-Expenditures Nexus: Evidence from Local Government Data’, International Economic Review 30, 415–429.
Johnson, P. and S. Parker, 1994, ‘The Interrelationship Between Births and Deaths’, Small Business Economics 6, 283–290.
Johnson, P. and S. Parker, 1996, ‘Spatial Variations in the Determinants and Effects of Firm Births and Deaths’, Regional Studies 30, 679–688.
Kangasharju, A., 1997, ‘Regional Variation in Firm Formation: Cross-Sectional and Panel Data Evidence From Finland’, submitted to Papers in Regional Science.
Keeble, D. and S. Walker, 1994, ‘New Firms, Small Firms and Dead Firms: Spatial Patterns and Determinants in the U.K.’, Regional Studies 28(4), 411–428.
Littunen, H., E. Storhammar and T. Nenonen, 1997, ‘The Success of New Firms and Local Environment’, Submitted to Entrepreneurship and Regional Development.
Love, J., 1993, ‘Spatial Entry and Exit: Recursive and Simultaneous Estimations’, Strathclyde Papers in Economics 93/7, University of Strathclyde.
Moyes, A. and P. Westhead, 1990, ‘Environments for New Firm Formation in Great Britain’, Regional Studies 24, 123–136.
Nickell, S., 1981, ‘Biases in Dynamic Models with Fixed Effects’, Econometrica 49, 1417–1426.
Reynolds, P., D. J. Storey and P. Westhead (eds.), 1994a, ‘Special Issue: Regional Variations in new Firm Formation’, Regional Studies 28.
Reynolds, P., D. J. Storey and P. Westhead, 1994b, ‘Cross-national Comparisons of the Variation in New Firm Formation Rates’, Regional Studies 28, 443–456.
Rosenbaum, D. I., F. Lamort, 1992, ‘Entry, Barriers, Exit and Sunk Costs: An Analysis’, Applied Economics 24, 297–304.
Spilling, O., 1996, ‘Regional Variation of New Firm Formation: The Norwegian Case’, Entrepreneurship & Regional Development 8, 217–243.
Storey, D., 1988, ‘The Role of Small and Medium Sized Enterprises in European Job Creation: Key Issues for Policy and Research’, in M. Giaoutze, P. Nijkamp and D. J. Storey (eds.), Small and Medium Size Enterprises and Regional Development, London: Routledge.
Tervo, H. and H. Niittykangas, 1994, ‘Developments in the Growth, Location and Turbulence of Business Services in Finland’, Papers in Regional Science: The Journal of the RSAI 73, 73–95.
Westhead, P. and S. Birley, 1994, ‘Environment for Business Deregistrations in the U.K., 1987–1990’, Entrepreneurship & Regional Development 6, 29–62.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Kangasharju, A., Moisio, A. Births-Deaths Nexus of Firms: Estimating VAR with Panel Data. Small Business Economics 11, 303–313 (1998). https://doi.org/10.1023/A:1008061813017
Issue Date:
DOI: https://doi.org/10.1023/A:1008061813017