The Effects of New Business Formation on Industry Growth
Does new business formation cause economic growth? Much recent research, initiated by Fritsch and Mueller (2004), has been devoted to this question (for an overview of this literature, see Fritsch 2007). Most studies find that long-run (supply-side) effects of new business formation are more pronounced than the direct short-run effects. Fritsch and Mueller (2004) enumerate four categories of these supply-side effects: securing efficiency, acceleration of structural change, amplified innovation, and greater variety of products. All research on this topic to date has in common that it analyzes the short-run and long-run relationship between new business formation and economic development by means of distributed lag models.
KeywordsGross Domestic Product Unit Root Error Correction Model Business Formation Panel Unit Root Test
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