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Firm entry and exit in Italian provinces and the relationship with unemployment

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Abstract

This study investigates the influence of the unemployment rate on firm entry, exit and net entry in Italian provinces. We attempt to explain these market dynamics in six different sectors, including manufacturing, construction, commerce, hotels and restaurants, transport and financial services. We control for other regional factors, such as patenting activity, economic growth, economic welfare, tourism, industrial districts and whether being a major city. Findings indicate that the effects of unemployment on entry and exit are dependent upon the sector under study, but are mainly negative. This suggests a lack of dynamics in the Italian regional labor markets.

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Notes

  1. For an overview of the different factors influencing new firm formation at both the individual and aggregate level, see Lee et al. (2004) and Carree (2006).

  2. Using panel data of 23 OECD countries for the period 1974-2002, Audretsch et al. (2005) investigate these two effects empirically. Their results confirm the existence of the two distinct relationships between unemployment and self-employment rates.

  3. See also Foti and Vivarelli (1994, p. 83). Audretsch and Jin (1994) claim to reconcile these seemingly contradicting relationships by taking into account industry and economy-wide shocks in the model of entrepreneurial choice.

  4. Note that in the Southern regions the so-called shadow economy is much larger than in other parts of the country (ISTAT 2005).

  5. We have also examined the results when taking the rates relative to the number of incumbent firms (in the previous period). These results were very close to those of entry and exit rates relative to total labor force.

  6. Provinces with at least one “important” (according to the definition used by Unioncamere) industrial district include: Ascoli Piceno (shoes), Arezzo (golden jewelry), Avellino (leather), Bari (footwear), Biella (textiles—wool), Brescia (metal household artifacts and machinery for textile industry), Como (silk), Ferrara (mechanical engineering), Macerata (leather products), Mantova (stockings), Modena (knitwear and biomedical industry and ceramics), Pisa (leather), Pordenone (cutlery), Prato (textiles), Parma (ham), Pesaro-Urbino (furniture), Pavia (machinery for the footwear industry), Siena (furniture), Treviso (sporting footwear), Vicenza (leather), Verona (furniture) and Viterbo (ceramics).

  7. They are coded as sectors D, F, G, H, I and J in the Unioncamere—Movimprese databases.

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Authors and Affiliations

  1. University of Maastricht, Maastricht, The Netherlands

    Martin Carree

  2. University of Bologna, Bologna, Italy

    Enrico Santarelli

  3. Erasmus University Rotterdam, Rotterdam, The Netherlands

    Ingrid Verheul

Authors
  1. Martin Carree
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  2. Enrico Santarelli
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  3. Ingrid Verheul
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Correspondence to Martin Carree.

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Carree, M., Santarelli, E. & Verheul, I. Firm entry and exit in Italian provinces and the relationship with unemployment. Int Entrep Manag J 4, 171–186 (2008). https://doi.org/10.1007/s11365-007-0060-1

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