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IZA
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Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries
by
Eric Bartelsman, John C. Haltiwanger, Stefano Scarpetta
(October 2004)
Abstract:
In this paper we provide an analysis of the process of creative destruction across 24
countries and 2-digit industries over the past decade. We rely on a newly assembled dataset
that draws from different micro data sources (business registers, census, or representative
enterprise surveys). The novelty of our approach is in the harmonisation of firm level data
across countries, which enables international comparisons and the identification of country
specific factors as opposed to sectoral 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 towards 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 U.S., 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, amongst them, those that have progressed the most towards 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 more of
Continental Europe with smaller flows and less impressive post-entry growth of successful
firms.
Text: See Discussion Paper No. 1374
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