This paper investigates dynamic interrelationships between the births and deaths of firms at the level of the 88 Finnish subregions during 1989–1993. The births-deaths nexus of firms is analysed using vector autoregressions (VAR) and an instrumental variable estimator. The main findings are: first, that the firm births equation has a two-year lag structure, which means that firm deaths cause firm births, and firm births cause subsequent births following two- year lags; and second, that according to the firm deaths equation, which has a one-year lag structure, firm births do not cause firm deaths, but firm deaths cause subsequent deaths. A further finding is that the use of the ordinary least-squares estimator produces inconsistent, and clearly different results from those produced by the instrumental variable estimator.
Small Business Economics – Springer Journals
Published: Oct 6, 2004
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