Startup Types and Macroeconomic Performance in Europe

75 Pages Posted: 21 Jun 2022

See all articles by Ralph De Haas

Ralph De Haas

European Bank for Reconstruction and Development; Centre for Economic Policy Research (CEPR); KU Leuven

Vincent Sterk

University College London

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 20, 2022

Abstract

Can policymakers improve macroeconomic performance by encouraging the entry of high-performance startups? To answer this question, we construct a novel and comprehensive data set on 1.3 million startups in ten European countries. We apply cluster analysis to identify distinct startup types and trace their development over time. Three stylized facts transpire. First, we uncover five well-separated startup types that are consistently present across countries, industries, and cohorts. We label these Basic, Large, Capital-intensive, Cash-intensive, and High-leverage. Second, the initial differences between these startup types are persistent. Third, each startup type displays a characteristic life cycle in terms of productivity, employment generation, and exit rates. We feed these empirical results into an agnostic firm dynamics model to quantify how much structural policy could improve macroeconomic performance by shifting the composition of startups. We find that substantial gains in aggregate employment and productivity can be made through policies that benefit high-performance startups (such as large and capital-intensive ones) while discouraging the entry of underperforming firms (such as highly leveraged ones).

Keywords: startups, firm entry, productivity, corporate tax, entrepreneurship, cluster analysis

JEL Classification: D22, D24, G32, L11, L25, L26, O47

Suggested Citation

De Haas, Ralph and Sterk, Vincent and van Horen, Neeltje, Startup Types and Macroeconomic Performance in Europe (June 20, 2022). EBRD Working Paper No. 269, Available at SSRN: https://ssrn.com/abstract=4140934 or http://dx.doi.org/10.2139/ssrn.4140934

Ralph De Haas (Contact Author)

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom

HOME PAGE: www.ebrd.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

KU Leuven

Naamsestraat 69
Leuven, B-3000
Belgium

Vincent Sterk

University College London ( email )

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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