Contribution Of New Firms Research Articles

Why Italy Needs an Entrepreneurial Renaissance after COVID-19

New firms play a critical role in the economy. They disrupt markets with new technologies, offer social mobility opportunities, and support labor market dynamism. As much as any society should nurture and help its new generations to prosper and grow, its economy will be significantly disadvantaged without the contribution of new firms. Not surprisingly, therefore, the consequences that the COVID-19 pandemic might have on new firms’ creation and growth are a critical area of attention. In this chapter, we navigate this complex landscape using entrepreneurship as our compass to sketch Italy’s strengths and weaknesses and reflect on how they could be affected by the disruptions that the whole world is now facing.

A cross-country analysis of start-up employment dynamics

This article carries out a detailed descriptive analysis of employment dynamics of new firms, using comparable and highly representative data for 19 countries. It does so by using a novel analytical decomposition of the contribution of new firms to job creation, which allows to separately focus on different margins. In particular, the contribution of new firms to job creation can be expressed as a combination of four different elements: start-up ratio; survival share; average size of firms at entry; and average post-entry growth rate of survivors. This comprehensive characterization of entrants’ employment dynamics points to regularities and differences in business dynamism across countries, and can be used as an important diagnostic tool by policy makers.

Job Creation, Job Destruction, and Productivity Growth: The Role of Young Businesses

Recent improvements in the data infrastructure at US statistical agencies have dramatically enhanced the ability to measure and study job creation and job destruction. The longitudinal data now permit the tracking of all firms and establishments in the US private sector in a comprehensive and integrated manner. This allows researchers to distinguish between the contribution of new firms and that of new establishments. In addition, firm entry, growth, and survival dynamics can be tracked in terms of organic changes instead of changes associated with mergers and acquisitions or other forms of business ownership changes. These new developments have led to a burgeoning literature on US firm dynamics. The recent literature has especially focused on the role of young businesses for job and productivity growth. The findings from that literature are the focus of the current article. The recent developments are discussed in light of the large literature on firm dynamics (in terms of both theory and empirics) that has developed over the past few decades.

Does Quality Make a Difference? Employment Effects of High- and Low-Quality Start-Ups

This paper investigates the impact of new firms' quality on the magnitude of their employment effects. Our results clearly show that the quality of start-ups, measured by their affiliation with sectors and innovative industries, strongly influences the direct and the overall employment contribution of new firms. In particular, start-ups in manufacturing industries generate larger direct and overall growth effects than those in services. Moreover, new businesses in innovative manufacturing and in knowledge-intensive service industries make a larger direct contribution to employment than start-ups affiliated with other industries. We also find a relatively strong overall effect of new business formation in knowledge-intensive service industries. However, the impact of start-ups in innovative manufacturing industries on overall regional employment growth is not statistically significant, which may be mainly due to their rather small share in all start-ups and because they impact more on firms and employment in other regions than do start-ups in non-innovative manufacturing. Finally, we discuss the implications for entrepreneurship policy that can be derived from our findings.

Linking net entry to regional economic growth

Regional growth differentials could be explained by how intensively and dynamically new firms of a particular region enter expanding industries. Although the direct contribution of new firms to value creation and growth may be regarded as tautological, the aggregate impacts are largely empirically unobserved. After a brief motivation, we use an expression of firm net entry as an indicator of the distinctive capacity of regional entrepreneurial resources to enter new industries and create value. Using data for Belgian districts, we test the net entry effects on subsequent economic growth in the manufacturing and services industries. Our analysis helps emphasize the different dynamics at work within the manufacturing and services industries and, although requiring cautious interpretation, provides evidence for some positive impact of net entry on regional economic growth in the services industry.

Policy Review Section

In this Policy Review Section, Ivan Turok of Strathclyde University and Pat Richardson of Stirling University consider the contribution of new firms to local economic development based upon recent survey evidence from central Scotland. Support for the formation of small enterprises remains an important part of government policy, at central and local levels. Turok and Richardson argue that the experience in West Lothian offers insights into the scope of small firms policy in an unfavourable environment. The study of 200 new firms shows that access to jobs has been provided for several hundred people who might otherwise have been unemployed and job satisfaction given to over 100 new firm founders. Turok and Richardson, however, cast doubts surrounding the more far reaching claims made about the economic contribution of small firms based on their survey. The scale of expansion has been modest, innovation limited and the prospects for sustained growth are not good. They conclude that to foster economic developments in areas such as central Scotland requires far more than merely the promotion of an increase in the number of new business starts. In the second article, Richard Oakey of Heriot-Watt University examines some implications for the future development of high technology industry of the so-called ‘peace dividend’ arising from savings which are likely to be made in defence expenditure. Oakey points out that most research into the industrial and regional policy aspects of high technology focuses on input data covering R&D expenditure or employment and yet it is often the case that there is a weak link between R&D investment and the development of commercially successful products. For example, many larger British and American high technology companies, unlike their German and Japanese counterparts, are dependent for much of their business on non-commercial military research and the guaranteed purchase of expensive defence products. Such companies could well face problems of adaptation in the post ‘cold war’ era. In geographical terms, many supposedly successful ‘high tech’ areas, far from being examples of free market growth, are ‘propped up’ by a constant stream of hidden government subsidies in the form of defence-related business which involves a commitment to purchase final products at often exorbitant prices. In conclusion, Oakey points to the danger that at a time when the UK balance of payments suggests the need to increase investment in high technology industry, there is a danger that defence expenditure savings will not be invested by the current government since there is no ideologically sound means by which it can be recycled.