Abstract
We study firm dynamics using a novel database of all formally registered firms in Cote d'Ivoire from 1977 to 1997, which account for about 60% of GDP. First, we examine entry and exit patterns and the role of new and exiting firms versus incumbents in job creation and destruction. We find that while the rate of job creation at new firms is quiet high – at 8% on average – the numbers of jobs added by new firms is small in absolute terms. Next, we examine survival rates and find that the probability of survival increases monotonically with firm size, but that manufacturing and foreign-owned firms face higher likelihoods of exit compared to service oriented and domestically-owned firms. We find that higher GDP growth increases the probability of firm survival, but this is a broad impact with no firm size disproportionately affected. In robustness checks we find that post-1987, size is no longer a significant determinant of firm survival for new entrants, suggesting that the operating environment for firms changed. Finally, we find that trade and fiscal reform episodes raised the probability of firm exit and attenuated the survival disadvantages faced by smaller firms, but exchange rate revaluation and pro-private sector reforms did not significantly lower the likelihood of exit.
Highlights
Firm entry and exit – Schumpeterian "creative destruction" – is critical for the continued dynamism of the modern economy
Our analysis focuses on private sector dynamics over the business cycle
We find that while the rate of job creation at new firms is quiet high at 8% on average, the absolute numbers of jobs added by new firms is small in absolute terms
Summary
Firm entry and exit – Schumpeterian "creative destruction" – is critical for the continued dynamism of the modern economy. We examine job creation and destruction, at both new and incumbent firms, in Cote d'Ivoire, ranked 169 of 181 countries in the 2011 Doing Business "Ease of Doing Business" ranking (where 1 indicates the most favorable business environment) (World Bank, 2010a). We use a new and unique database that includes the complete census of registered firms in Cote d'Ivoire from 1976 through 1997 to answer these questions.. We use a new and unique database that includes the complete census of registered firms in Cote d'Ivoire from 1976 through 1997 to answer these questions.2 This includes data collected at the time of registration (ownership and sector) as well as annual reporting of total employment. Unlike comparable studies that rely on survey data or manufacturing censuses, we broaden existing studies to compute over time comprehensive formal sector entry and exit rates, as well as growth, contraction, and survival at incumbent firms. Since we use a census of formal sector firms that extends beyond the manufacturing sector, we can analyze the impact of macroeconomic and other shocks on sector distributions
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