The Black Box of Business Dynamics

Maria Callejon and Vicente Ortun

No XREAP2009-07, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: Research in business dynamics has been advancing rapidly in the last years but the translation of the new knowledge to industrial policy design is slow. One striking aspect in the policy area is that although research and analysis do not identify the existence of an specific optimal rate of business creation and business exit, governments everywhere have adopted business start-up support programs with the implicit principle that the more the better. The purpose of this article is to contribute to understand the implications of the available research for policy design. Economic analysis has identified firm heterogeneity as being the most salient characteristic of industrial dynamics, and so a better knowledge of the different types of entrepreneur, their behavior and their specific contribution to innovation and growth would enable us to see into the ‘black box’ of business dynamics and improve the design of appropriate public policies. The empirical analysis performed here shows that not all new business have the same impact on relevant economic variables, and that self-employment is of quite a different economic nature to that of firms with employees. It is argued that public programs should not promote indiscriminate entry but rather give priority to able entrants with survival capacities. Survival of entrants is positively related to their size at birth. Innovation and investment improve the likelihood of survival of new manufacturing start-ups. Investment in R&D increases the risk of failure in new firms, although it improves the competitiveness of incumbents.

Keywords: Industrial dynamics; industrial policy; creative destruction; business demography. (search for similar items in EconPapers)
JEL-codes: D21 L16 L52 M13 O25 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-09, Revised 2009-09
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-7.pdf First version, 2009 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-7.pdf Revised version, 2009 (application/pdf)

Related works:
Journal Article: Black-box business dynamics (2009)
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