Abstract
AbstractWe collate sixteen panel surveys from twelve developing countries to develop stylized facts from over 14,000 firms on how much firm death there is, which types of these firms are most likely to die, and why they die. Small firms die at an average rate of 8.2% per year. Death rates are higher in richer countries, for younger firms and less profitable firms, and for firms run by youth. We also find that firm death need not mean permanent exit from self-employment for the firm owner.
Highlights
Twenty-seven percent of the non-agricultural labor force in developing countries consists of self-employed business owners with no employees (Gindling and Newhouse, 2014), and 99 percent of the firms in many poor countries have 10 workers or fewer (McKenzie, 2017)
Firm death is extremely common among small firms, with half of the current stock of small firms in a developing country likely to die within the six years
Because panel surveys of such firms are still relatively rare, often do not track firms for long periods, and often lose firms which die to attrition, systematic data on the rates, correlates, and causes of firm death have not been available
Summary
Twenty-seven percent of the non-agricultural labor force in developing countries consists of self-employed business owners with no employees (Gindling and Newhouse, 2014), and 99 percent of the firms in many poor countries have 10 workers or fewer (McKenzie, 2017). Kraftt (2016) uses the Egypt Labor Market Panel Survey to find 51 percent of firms died over an 8-year period, and 61 percent over a subsequent 6-year period The advantages of these datasets are that the samples can be large and representative, and they capture micro and small businesses operating within households. Our inclusion criteria for using multi-purpose household panel surveys was to include nationally representative surveys that included a detailed non-farm business module, had low rates of attrition, a relatively large sample size, and enabled us to measure firm survival and death rates over at least three or more waves.
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