Labor productivity response of the micro-and-small-firm sector to business entries and exits

This article investigates whether differences in business entry and exit rates explain differences in average, municipality-level labor productivity in the micro- and small-firm (MSF) sector. We focus on the case of Chile, exploiting an exogenous source of variation to exit rates-an exceptional even...

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Bibliographic Details
Published in:Journal of small business management 2022-11, Vol.60 (6), p.1449-1483
Main Authors: Modrego, Félix, Foster, William E.
Format: Article
Language:English
Subjects:
Business entries and exits
Developing countries
Inactive
Labor productivity
LDCs
Small business
small firms
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Summary:This article investigates whether differences in business entry and exit rates explain differences in average, municipality-level labor productivity in the micro- and small-firm (MSF) sector. We focus on the case of Chile, exploiting an exogenous source of variation to exit rates-an exceptional event when the tax authority closed tens of thousands of ostensibly inactive firms in 2003-to instrument metrics of business dynamism in regression models of labor productivity. Pooled and panel instrumental variable (IV) estimations confirm that even the sector comprising the smallest firms in a less developed country can raise its productivity in the face of increased competition, knowledge inflows, and the release of resources.
ISSN:0047-2778
1540-627X
DOI:10.1080/00472778.2021.1934852