Scandinavian Working Papers in Economics

Working Papers,
Swedish Entrepreneurship Forum

No 2011:8: Creative Destruction and Productivity – Entrepreneurship by type, sector and sequence

Martin Andersson , Pontus Braunerhjelm () and Per Thulin ()
Additional contact information
Martin Andersson: Centre of Excellence for Science and Innovation Studies (CESIS) at JIBS and The Royal Institute of Technology (KTH). He is also affiliated to Blekinge Institute of Technology (BTH)
Pontus Braunerhjelm: Swedish Entrepreneurship Forum, Postal: Swedish Entrepreneurship Forum, Örebro University, SE-70182 ÖREBRO, Sweden
Per Thulin: Swedish Entrepreneurship Forum, Postal: Swedish Entrepreneurship Forum, Örebro University, SE-70182 ÖREBRO, Sweden

Abstract: Schumpeter claimed the entrepreneur to be instrumental for creative destruction and industrial dynamics. Entrepreneurial entry serves to transform and revitalize industries, thereby enhancing their competitiveness. This paper investigates if entry of new firms influences productivity amongst incumbent firms, and the extent to which altered productivity can be attributed sector and time specific effects. Implementing a unique dataset we estimate a firm-level production function in which the productivity of incumbent firms is modeled as a function of firm attributes and regional entrepreneurship activity. The analysis finds support for positive productivity effects of entrepreneurship on incumbent firms, albeit the effect varies over time, what we refer to as a delayed entry effect. An immediate negative influence on productivity is followed by a positive effect several years after the initial entry. Moreover, the productivity of incumbent firms in services sectors appears to be more responsive to regional entrepreneurship, as compared to the productivity of manufacturing firms. The unique data implemented (population) allows us to identify genuinely new ventures as compared to those associated with reorganizations of existing businesses, thereby overcoming much of data deficiencies in previous studies. In addition, data are distributed on Swedish functional labor market regions.

Keywords: entrepreneurship; entry; business turbulence; incumbent firms; productivity; region; business dynamics

JEL-codes: D22; L10; L26; O31; R11

29 pages, April 1, 2011

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