Institutions and Micro-enterprises Demography: A Study of Selected EU Countries, 1997–2006

Abstract

Micro-enterprises display diverse patterns with regards to birth rate, death rate, evolution and distribution or density across countries. A large part of the variation of the demography of business enterprises is explained in terms of institutional factors like regulation, corruption, trust, local governance, networks, kinship or family lineage-based business relations. Very high birth and death rates are found in the UK, followed by Portugal, Spain and Italy. High death rates are usually found in the sectors with very high birth rates, as well as in declining sectors, particularly manufacturing, trade and repairing services. A very high churn rate in microenterprises as well as a more balanced size distribution of enterprises in the UK is due to highly competitive market-oriented institutions enabling easier entry, bankruptcy or exit. High density with very low birth and death rates of micro-enterprises are found in Italy due to the particular characteristics of informal institutions of the industrial districts where there is a dense network of relations governing the functioning, entry or exit of enterprises. Survival rate is very high in the UK as compared to the other three countries in the short term but in the long term, over five years, it falls below 50 percent, while Spain and Italy have much higher long-term survival rates.Despite higher short-term survival rates the surviving enterprises of the UK have lower growth of employment as compared to that of the other countries. The greater density of the micro-enterprises in Spain or Portugal makes their business environment more competitive where the inefficient new entrants are quickly weeded out, whereas the remaining ones become more resilient.