European Regional Science Association
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European Regional Science Association
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The abstract for paper number 253:
Maria Callejon, University of Barcelona
Departament de Politica Economica, Barcelona, Spain, Mari Jose Aranguren, Universidad de Deusto
ESTE, San Sebastián, Spain
Size of start-ups and contribution to aggregate productivity
The rate of creation of new businesses is usually considered an indicator of the efficiency of a productive system. In the last years many countries have implemented national and regional policies that seek to promote the creation of new firms, especially innovative firms. Only very seldom policy makers and experts seem to consider the possibility of “excess entry” either globally or in specific industries or activities. Additionally, when it is accepted that the positive contribution of an entrant depends upon its characteristics, there are few attempts to systematically analyse this aspect.
The theoretical and empirical relationship between the rhythm of creation of firms, the characteristics of those firms (size, industry, ownership) on one side, and their contribution to aggregate productivity on the other side has been studied in a set of valuable papers, but still more work is needed. Our hypothesis is that the entry of a new firm implies a double effect: (i) a positive effect on aggregate productivity due to the updated technology embedded in the new firm (vintage effect), and (ii) a negative external effect due to increased competition and displacement of incumbent firms whose obsolescence is accelerated. Our work aims to contribute to the theoretical approach of the kind of variables that determine an “optimal” entry rate, given specific characteristics of markets and industries. On the empirical side we perform a tentative test with data corresponding to the case of Spain. The provisional results suggest that entrants of a very small size present lower contributions to the improvement of aggregate productivity, than entrants with stronger commitment in terms of initial investment. Key words: market entry, market structure, productivity.
Unfortunately full paper has not been submitted.