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Firm dynamics and business cycle what doesn't kill you makes you stronger?

Author

Listed:
  • Gomis, Roger.
  • Khatiwada, Sameer.
Abstract
This paper analyses the impact of recessions and booms on firm performance. We look at 70,000 firms in over 100 countries between 1986 and 2014 and document the trends in firm entry over the business cycle. Our paper confirms some standard facts about firm dynamics: employment growth is decreasing with size and age; entry rate is pro-cyclical while the exit rate is counter-cyclical. For example, in case of advanced economies, 97 per cent of employment creation is by firms between the ages of 0 and 5 years, while for developing and emerging economies, it is 86 per cent of all employment. Our main results are: first, we do see selection effects of recessions, particularly when we look at employment, sales and capital. Specifically, when a firm enters the market during good times, they tend to have lower employment and capital than firms that enter the market during bad times. Second, when we look at total factor productivity (TFP), we don’t see a clear “cleansing effect” of recessions – more productive firms entering the market while less productive leaving. Third, the effects of entering during a boom or a recession tend to persist for a long time, over 15 years. Fourth, we find notable differences between income groups – while recessions tend to create stronger firms in the advanced economies, booms tend to create stronger ones in case of the emerging economies. Lastly, the effects of recessions on firms tend to vary by sector.

Suggested Citation

  • Gomis, Roger. & Khatiwada, Sameer., 2016. "Firm dynamics and business cycle what doesn't kill you makes you stronger?," ILO Working Papers 994909323402676, International Labour Organization.
    • Handle: RePEc:ilo:ilowps:994909323402676
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pietro Santoleri, 2020. "Innovation and job creation in (high-growth) new firms," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 29(3), pages 731-756.
    2. G Dosi & M C Pereira & A Roventini & M E Virgillito, 2018. "Causes and consequences of hysteresis: aggregate demand, productivity, and employment," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(6), pages 1015-1044.
    3. repec:hal:spmain:info:hdl:2441/hiaqa97n684boj041a440irqd is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/4h9cnu4n2k8tfri093jil1d739 is not listed on IDEAS
    5. Péter Bauer & Marianna Endrész, 2018. "Firm Dynamics and Aggregate Growth: The Case of Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(2), pages 68-98.
    6. Giovanni Dosi & Marcelo C. Pereira & Andrea Roventini & Maria Enrica Virgillito, 2018. "Causes et consequences of hysteresis : aggregate demand, productivity and employment," Sciences Po publications info:hdl:2441/4h9cnu4n2k8, Sciences Po.
    7. Giovanni Dosi & Marcelo Pereira & Andrea Roventini & Maria Enrica Virgillito, 2018. "Causes et consequences of hysteresis : aggregate demand, productivity and employment," Sciences Po publications info:hdl:2441/hiaqa97n684, Sciences Po.

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    More about this item

    Keywords

    enterprise development; business strategy; productivity.; employment creation; input output analysis; trend;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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