Diehard or delicate? Violence and young firm performance in a developing country
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The genesis and survival of new businesses is an important determinant of entrepreneurial dynamism. With the recent surge in security challenges, the issue of young firms’ resilience has surfaced. How do changes in external risks affect firms of different ages? Using Enterprise Surveys, we construct a unique data set of more than 2000 firms locating across Pakistan. The information is used to estimate the link between firms’ employment growth and alternative measures of political violence at the provincial level. The key estimates suggest that the youngest firms in our sample experience 45% lesser growth in employment each year when terrorism escalates at its average rate. The growth cut is 31% for old firms. These findings are not conditional on firm size or the way political violence is measured. A battery of statistical tests, including an instrumental variables estimator, validates the inference.
KeywordsFirm age Firm performance Political violence Terrorism Pakistan
JEL ClassificationD22 F50 L25 L26 M13 P48
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