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Small Business Economics

Erschienen in:

01.05.2011

Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries

verfasst von: Niels Bosma, Erik Stam, Veronique Schutjens

Erschienen in: Small Business Economics | Ausgabe 4/2011

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Abstract

Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, as measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988–2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.

Vorheriger Artikel Why does the effect of new business formation differ across regions?

Nächster Artikel New firm formation and employment growth: regional and business dynamics

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Competition in product markets, especially in labor markets, is likely to be concentrated in the home region of the firm. The learning that takes place through knowledge spillovers is probably even more localised (see Jaffe et al. 1993; Breschi and Lissoni 2003).

In the Netherlands, there are practically no regions where regulations differ from those set by national legislation.

Perhaps innovative entrants are the strongest stimulators of competitiveness. For example, Geroski (1989) found that higher entry rates led to higher productivity growth, which he explains by assuming that entry stimulates competition, and greater competition spurs on productivity growth. However, he also showed that innovation was an even more important driver of productivity (cf. Baily and Chakrabarti 1985).

Turbulence rates are often also defined as firm turnover rates; see, for example, Caves (1998).

Competitiveness is often measured as either employment growth or growth in total factor productivity (TFP). There are some notable differences between these measures. For example, during a recession, the efficiency measures by managers in incumbent firms might lead to employment loss and TFP growth in the short term. In the medium term, unemployment-push entrepreneurship might absorb the employment loss and decrease TFP.

As a robustness check, we excluded five regions from the analysis in the manufacturing sector, because their regional growth rates were heavily determined by extraction (gas and electricity), which could possibly interfere with our model since regional output may primarily be caused by one or two large companies. There appears to be no significant change in the results if we exclude these five regions.

The derived depreciation rates were 5.8% for manufacturing and 4.7% for services.

We use a general measure of firm entry, and—apart from the distinction between manufacturing and services—do not concentrate on a specific type of entry. Aghion and Bossanova (2006), for example, focus on the entry of foreign firms. They argue that these are on average larger and more likely to enter at the technological frontier than domestic entrants and are thus more likely to be a threat to incumbents, triggering a process of creative destruction. Our data do not enable us to test the differential impact of foreign entries.

Indeed, the 1996 values for related variety appeared to be strongly correlated with the 2002 values. Because of the time frame explored in our study (1990-2002), we chose to include only the 1996 level.

The F-statistics with respect to variance between regions for turbulence in services amounts to 20.7. In manufacturing, the corresponding F-value is 9.0. All are significantly different from zero (p > 0.95).

The Treaty of Wassenaar resulted in long-term agreements between the national government and representatives of the employers’ federations and labour unions.

The most important change in the Establishment Act has been the abolishment of mandatory self-employment exams in most industries.

The use of spatial weight matrices on distances rather than neighbouring regions produced very similar results.

This suggests that the (designed) spatial autocorrelation effect may unintentionally pick up some temporal autocorrelation as a result of business cycles. It is therefore important to account for business cycle effects.

The estimated maximum effect by Fritsch and Schroeter (this issue), who also find an inverse U-shaped impact, occurs at a start-up rate of about 8%. However, the percentages are not directly comparable. First, their estimated curve is for manufacturing, while we only find such a curve in services. Second, their approach differs in that they use the workforce as a denominator when deriving entry rates and use employment growth as the dependent variable.

Also, we did not find a polynomial lag impact structure that resembles the one discussed in Fritsch (2008). This lag structure is characterised by positive short-term employment effects (typically between 0-2 years) diminishing the effects because of replacement effects that may even become negative (3–7 years) and positive long-term (carrying capacity) effects surfacing only after that.

The results of these additional analyses are not reported, but are available upon request.

Titel: Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries
verfasst von: Niels Bosma
Erik Stam
Veronique Schutjens
Publikationsdatum: 01.05.2011
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 4/2011
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-009-9257-8

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