Review of Industrial Organization 22: 225–243, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Entry and Exit in a Transition Economy: The Case
BARBARA M. ROBERTS
and STEVE THOMPSON
Department of Economics, University of Leicester, Leicester, LE1 7RH, U.K.
The Business School, University of Nottingham, Nottingham, N98 1BB, U.K.
Abstract. The purpose of this paper is to examine the industrial entry and exit in a transition
economy, over the interval of change from a predominately state-owned productive system. The
data set employed offers a near-exhaustive coverage of manufacturing ﬁrms in Poland. The paper
estimates entry and exit equations across 152 3-digit industries, using an adaptation of an Orr–
Shapiro/Khemani-type model to allow for the special circumstances of a transition economy. The
results suggest that, despite the turbulence of the immediate post-transition period, the patterns of
entry and exit behaviour in Poland correspond closely to those observed in more mature market
During the past 10 to 15 years a series of studies at the ﬁrm level, generally using
micro data derived from national census of production returns, has done much to
advance our understanding of the processes of entry and exit. Surveys of this work
– in Cable and Schwalbach (1991), Siegfried and Evans (1994), Geroski (1995)
and Caves (1998) – have generated a series of ‘stylized facts’ about entry which
appear to hold across the developed economies of North America, Europe and
Asia. These suggest that while gross entry rates are relatively high – typically six
to eight percent per annum at the 3-digit SIC level
– the majority of entrants
are sufﬁciently small to ensure that entry has, at most, a rather modest impact on
market structure. It also appears that exit rates are high – perhaps ﬁve percent per
annum – particularly among recent entrants, so that entry and exit have a signiﬁcant
inter-temporal correlation. However, inter-industry variations in entry and exit be-
haviour, though substantial, have proven difﬁcult to model precisely and appear to
exhibit substantial within industry variations over time. These probably owe much
to regulatory, technological and life cycle factors speciﬁc to the industry.
The purpose of this paper is to examine industrial entry and exit in a transition
economy, over the interval of change from a predominately state-owned productive
system. The paper employs a data set derived from the Polish Central Statistical
See, for example, the evidence presented in Dunne et al. (1988) for the U.S.A. or by Geroski
(1991) for the U.K.