Research Discussion Papers, Bank of Finland
No 6/1996:
Microeconomic and Macroeconomic Influences on Entry and Exit of Firms
Pekka Ilmakunnas ()
and Jukka Topi ()
Abstract: We examine the entry and exit process in the Finnish
manufacturing industry. Microeconomic explanations of entry and exit are
derived from industrial organization theory and macroeconomic explanations
from the theory of monetary transmission mechanism. Since the variables to
be explained, the number of entering and exiting firms, are non-negative
integers, we use Poisson and negative binomial models in the estimation.
The data is a six year panel of three-digit industries. The results show
that scale economies form a significant entry barrier, but the evidence on
their role as an exit barrier is weaker. Concentration has a negative
impact on entry, but this result is not robust to the choice of estimation
method. Industry growth has a positive influence on entry and a negative
influence on exit, but also variables describing the general economic
climate have an influence on the entry-exit process. The variables
describing the monetary transmission mechanism have an expected influence
on entry. Credit supply has a positive and real interest rate a negative
effect on entry. However, the role of the macroeconomic influences on exit
is inconclusive. Past entry has a significant effect on exit, which
reflects the displacement of old firms by new ones and the short life
expectancy of new firms. Both entry and exit have almost unit elasticity
with respect to industry size, measured by the number of firms in the
previous period. Entry and exit rates are therefore practically independent
of industry size.
Keywords: entry; exit; monetary transmission mechanism; (follow links to similar papers)
36 pages, March 4, 1996
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