Firm Exits as a Determinant of New Entry: Is There Evidence of Local Creative Destruction?

Abstract

The study posits that the causal links between entry and failure rates also flow from failure to entry. As older firms fail, resources are recycled by new entrants permitting local renewal. Failure levels affect both the intensity of the entrepreneurial search for opportunities and the opportunity landscape facing entrepreneurs. Persistent high failure rates, however, provide signals about the difficulties of succeeding in a particular location. The model is tested using a unique longitudinal panel database made available by Statistics Canada, which encompasses the entry and exit of all Canadian enterprises between 1984 and 1998.