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Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies

50 Pages Posted: 6 Oct 2010 Last revised: 30 Mar 2011

J. David Brown

US Census Bureau Center for Economic Studies; IZA Institute of Labor Economics

John S. Earle

George Mason University - Schar School of Policy and Government; IZA Institute of Labor Economics

Date Written: September 1, 2010

Abstract

What role does new firm entry play in economic growth? Are entrants and young firms more or less productive than incumbents, and how are their relative productivity dynamics affected by financial constraints and the business environment? This paper uses comprehensive manufacturing firm data from seven economies (United States, Georgia, Hungary, Lithuania, Romania, Russia, and Ukraine) to measure new firm entry and the productivity dynamics of entrants relative to incumbents in the same industries. We contrast hypotheses based on "leapfrogging," in which entrants embody superior productivity, with an "experimentation" approach, in which entrants face uncertainty and incumbents can innovate. The results imply that leapfrogging is typical of early and incomplete transition, but experimentation better characterizes both the US and mature transition economies. Improvements in financial markets and the business environment tend to raise both the entry rate and productivity growth, but they are associated with negative relative productivity of entrants and smaller contributions of reallocation to growth among both entrants and incumbents.

Suggested Citation

Brown, J. David and Earle, John S., Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies (September 1, 2010). GMU School of Public Policy Research Paper No. 2011-07; US Census Bureau Center for Economic Studies Paper No. CES-WP- 10-20. Available at SSRN: https://ssrn.com/abstract=1687786

J. David Brown (Contact Author)

US Census Bureau Center for Economic Studies ( email )

4600 Silver Hill Road
Washington, DC 20233
United States
301-763-8769 (Phone)
301-763-5935 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

John S. Earle

George Mason University - Schar School of Policy and Government ( email )

3351 Fairfax Drive
MS 3B1
Arlington, VA 22201
United States
703-993-8023 (Phone)

HOME PAGE: http://earle.gmu.edu

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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