Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries

50 Pages Posted: 4 Jan 2005

See all articles by Eric J. Bartelsman

Eric J. Bartelsman

Vrije Universiteit Amsterdam; Tinbergen Institute; IZA Institute of Labor Economics

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Date Written: October 2004

Abstract

Bartelsman, Haltiwanger, and Scarpetta provide an analysis of the process of creative destruction across 24 countries and 2-digit industries over the past decade. They rely on a newly assembled dataset that draws from different micro data sources (business registers, census, or representative enterprise surveys). The novelty of their approach is in the harmonization of firm-level data across countries, which enables international comparisons and the identification of country-specific factors as opposed to sector and time effects. All countries display a massive reallocation of resources, with the entry and exit of many firms in all markets, the failure of many newcomers, and the expansion of successful ones. This process of creative destruction affects productivity directly by reallocating resources toward more productive uses, but also indirectly through the effects of increased market contestability. There are also large differences across groups of countries. While entry and exit rates are fairly similar across industrial countries, post-entry performance differs markedly between Europe and the United States, a potential indication of the importance of barriers to firm growth as opposed to barriers to entry. Transition economies show an even more impressive process of creative destruction and those that have progressed the most toward a market economy show better outcomes from this process. Finally, Mexico shows large firm dynamics with many new firms entering the battle but also many failing rapidly, while Argentina resembles Continental Europe with smaller flows and less impressive post-entry growth of successful firms.

This paper - a product of the Social Protection Team, Human Development Network - is part of a larger effort in the network to understand the process of creative destruction.

Keywords: entry, exit, survival, firm size, productivity, micro data

JEL Classification: L11, G33, D92

Suggested Citation

Bartelsman, Eric J. and Haltiwanger, John C. and Scarpetta, Stefano, Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries (October 2004). IZA Discussion Paper No. 1374; Tinbergen Institute Discussion Papers No. TI 2004-114/3; World Bank Policy Research Paper No. 3464. Available at SSRN: https://ssrn.com/abstract=612230

Eric J. Bartelsman

Vrije Universiteit Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands
+31 (0)20 44 46044 (Phone)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

IZA Institute of Labor Economics

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

John C. Haltiwanger (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

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

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

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

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