Business Cycles and Start-Ups Across Industries: An Empirical Analysis of German Regions

58 Pages Posted: 14 May 2018

See all articles by Alexander Konon

Alexander Konon

German Institute for Economic Research (DIW Berlin)

Michael Fritsch

University of Jena - School of Economics and Business Administration

Alexander Kritikos

Europa-Universitaet Viadrina - Fakultat fur Wirtschaftswissenschaften; German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

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Abstract

We analyze whether start-up rates in different industries systematically change with business cycle variables. Using a unique data set at the industry level, we mostly find correlations that are consistent with counter-cyclical influences of the business cycle on entries in both innovative and non-innovative industries. Entries into the large-scale industries, including the innovative part of manufacturing, are only influenced by changes in the cyclical component of unemployment, while entries into small-scale industries, like knowledge intensive services, are mostly influenced by changes in the cyclical component of GDP. Thus, our analysis suggests that favorable conditions in terms of high GDP might not be germane for start-ups. Given that both innovative and non-innovative businesses react counter-cyclically in 'regular' recessions, business formation may have a stabilizing effect on the economy.

Keywords: new business formation, entrepreneurship, business cycle, manufacturing, services, innovative industries

JEL Classification: E32, L16, L26, R11

Suggested Citation

Konon, Alexander and Fritsch, Michael and Kritikos, Alexander S., Business Cycles and Start-Ups Across Industries: An Empirical Analysis of German Regions. IZA Discussion Paper No. 11501. Available at SSRN: https://ssrn.com/abstract=3177376

Alexander Konon (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Michael Fritsch

University of Jena - School of Economics and Business Administration ( email )

Carl-Zeiss-Str. 3
D-07743 Jena
Germany

Alexander S. Kritikos

Europa-Universitaet Viadrina - Fakultat fur Wirtschaftswissenschaften ( email )

15230 Frankfurt (Oder)
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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

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