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The Turnover of Firms and Industry Growth

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  • Dan Johansson

Abstract

In a dynamic setting, every firm can be regarded as a “business experiment” with the objective to search and explore new business opportunities. It is suggested that the growth of an industry is enhanced by new-firm entry, since a positive correlation between the number of successes, i.e. fast-growing firms, and the number of business experiments is to be expected. Exit is necessary to sort out the firms that the market rejects. Hence, it is rather the entry and exit of firms that jointly should have a positive effect on growth, rather than the number of entries in isolation. This paper tests the hypothesis that a high turnover rate of firms has no, or a negative, effect on industry growth. The analysis is based on an extensive data set covering all Swedish IT firms that existed between 1994 and 1998. The turnover rate of firms is found to have a significantly positive effect on industry growth. Copyright Springer 2005

Suggested Citation

  • Dan Johansson, 2005. "The Turnover of Firms and Industry Growth," Small Business Economics, Springer, vol. 24(5), pages 487-495, June.
    • Handle: RePEc:kap:sbusec:v:24:y:2005:i:5:p:487-495
    DOI: 10.1007/s11187-005-6446-y
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    1. Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574, January.
      • Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E. With contributions by-Name:Dunne,Tim With contributions by-Name:Haltiwanger,John, 1995. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521465618, January.
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    Cited by:

    1. Donghyun Oh & Almas Heshmati & Hans Lööf, 2012. "Technical change and total factor productivity growth for Swedish manufacturing and service industries," Applied Economics, Taylor & Francis Journals, vol. 44(18), pages 2373-2391, June.
    2. Henrekson, Magnus & Johansson, Dan, 2010. "Firm Growth, Institutions and Structural Transformation," Ratio Working Papers 150, The Ratio Institute.
    3. C. Praag & Peter Versloot, 2007. "What is the value of entrepreneurship? A review of recent research," Small Business Economics, Springer, vol. 29(4), pages 351-382, December.
    4. Bo Carlsson & Gunnar Eliasson & Karolin Sjöö, 2018. "The Swedish industrial support program of the 1970s revisited," Journal of Evolutionary Economics, Springer, vol. 28(4), pages 805-835, September.
    5. Elena Cefis & Cristina Bettinelli & Alex Coad & Orietta Marsili, 2022. "Understanding firm exit: a systematic literature review," Small Business Economics, Springer, vol. 59(2), pages 423-446, August.
    6. Sven-Olov Daunfeldt & Niklas Elert & Dan Johansson, 2016. "Are high-growth firms overrepresented in high-tech industries?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(1), pages 1-21.
    7. Satu Nurmi, 2004. "Plant Size, Age and Growth in Finnish Manufacturing," Finnish Economic Papers, Finnish Economic Association, vol. 17(1), pages 3-17, Spring.
    8. Falguni Pattanaik & Narayan Nayak, 2014. "Economic freedom and economic growth in India: What is the empirical relationship?," Economic Change and Restructuring, Springer, vol. 47(4), pages 275-298, November.
    9. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244, September.
    10. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
    11. Mikhail Martynovich & Martin Henning, 2018. "Labour force building in a rapidly expanding sector," Industry and Innovation, Taylor & Francis Journals, vol. 25(2), pages 199-227, February.
    12. Mulligan, Robert F., 2004. "Fractal analysis of highly volatile markets: an application to technology equities," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 155-179, February.
    13. Gunnar Eliasson & Gunnar Eliasson & Dan Johansson & Erol Taymaz, 2024. "Firm Turnover and the Rate of Macro Economic Growth: Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction," International Journal of Microsimulation, International Microsimulation Association, vol. 17(2), pages 279-296.
    14. Dawn DeTienne & Melissa Cardon, 2012. "Impact of founder experience on exit intentions," Small Business Economics, Springer, vol. 38(4), pages 351-374, May.
    15. Dan Johansson, 2004. "Is small beautiful? The case of the Swedish IT industry," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 16(4), pages 271-287, July.
    16. Eliasson, Gunnar & Eliasson, Åsa, 2004. "The Theory of the Firm and the Markets for Strategic Acquisitions," Ratio Working Papers 44, The Ratio Institute.
    17. Eliasson, Gunnar, 2023. "Bringing markets back into economics," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 686-710.
    18. Bjuggren, Carl Magnus & Daunfeldt, Sven-Olov & Johansson, Dan, 2010. "Ownership and High-Growth Firms," Ratio Working Papers 147, The Ratio Institute, revised 29 Sep 2010.
    19. Fridh, Ann-Charlotte, 2003. "The Exit of Pharmacia and Regional Growth," Ratio Working Papers 22, The Ratio Institute.
    20. Dan Johansson, 2010. "The theory of the experimentally organized economy and competence blocs: an introduction," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 185-201, April.
    21. Gunnar Eliasson, 2018. "Why Complex, Data Demanding and Difficult to Estimate Agent Based Models? Lessons from a Decades Long Research Program," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 4-60.

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