chapter
24 Pages

Introduction

ByANNA MARIA FERRAGINA , EROL TAYMAZ AND

It is a stylized fact in industrial economics and in international trade that the threat of competition drives enterprises to improve productivity and innovate, and, as such, has a significant impact on industry and aggregate performance. Globalization and innovation are the two most important vehicles for long-term competitiveness. Both forces produce not only sectoral reallocation, but also a significant selection and turnover of firms within industries. Besides, innovation and internationalization are strictly linked to each other: innovation is an essential tool to compete in international markets; at the same time, firms operating in foreign markets gain access to superior knowledge and technology, which stimulates their performance. These arguments are strongly grounded in new international trade theories with heterogeneous enterprises and imperfect competition (Melitz, 2003; Bernard et al., 2003, 2006; Helpman et al., 2004). Consistent with this approach, all research reported in this book relies on microeconometric analyses and explore the determinants of firm dynamics, focusing in particular on innovation and global activities and emphasizing both intrasectoral firm heterogeneity and intersectoral differences using longitudinal data at the firm level. The studies also consider several other factors which affect the ability of firms to expand or enter/exit, such as factor intensity, scale economies, market structure and various barriers to entry and exit, such as financial market distortions, institutional inefficiencies and other market imperfections. The timing for such a collection is appropriate as it allows taking stock of the exceptional surge of interest in firms’ dynamics over the last two decades, which has involved different fields of research. The most relevant includes industrial organization studies related to the analysis of the differences in producer turnover across firms, industries and time periods. This rich literature follows the seminal papers by Dunne et al. (1988, 1989), Audretsch (1991) and Mata et al. (1995), in which sectoral and aggregate productivity gains are linked to productivity differences at the micro level and to the dynamics of exit of low productivity firms and the entry and growth of higher productivity firms. Departing from this literature, a rich path of both empirical and theoretical research has also developed in labour-and macroeconomics, with the study of the gross

employment flows due to job creation and job destruction by firms (Davis and Haltiwanger, 1996). In both strands of analysis, the aggregate productivity effect of net entry, along with the reallocation of market shares from lower-to higherproductivity growth plants, are indicators of the existence and quality of the competition process (Ter Wengel and Rodriguez, 2006). A second relevant family of contributions to the study of firm dynamics is more recent and falls in the area of international trade, tracing how firm dynamics are affected by foreign ownership (Görg and Strobl, 2003; Bernard and Sjöholm, 2003; Esteve-Pérez et al., 2004; Özler and Taymaz, 2007), by trade (Wagner, 2011; Görg and Spaliara, 2012) and by immigration (Mahuteau et al., 2011). Another rich strand of literature to take into account in the family of models which focus on firms’ internationalization is related to the learning by exporting and learning to export theories, a literature which has investigated the dynamics of producers in and out of international markets, also uncovering the complementary role of self-selection and feedback effects of internationalization on the firms’ productivity (Bernard and Jensen, 1995; Bernard and Wagner, 1997; Bernard et al. 2003; Das et al. 2007). The more conclusive information on the characteristics of globalized firms relative to domestic-oriented firms allowed by these studies has become an essential guide to theorists (see the seminal paper by Melitz, 2003) and policy makers. In particular, it has become a broadly recognized fact that only more productive firms can cover entry costs (sunk costs) to sell abroad and produce profitably. The collection of contributions in this book, organized in three parts, touches upon all of the above-mentioned strands in the literature, with the common factor of being all crucially associated with the analysis of the mechanisms of resource reallocation among heterogeneous firms in a market economy. The original works collected in the book propose new directions by adopting a microeconomic view and offering new interpretations of the impact of different dimensions. To this purpose, the book collects from qualified students original and up-to-date descriptive and analytical research that spans countries as well as different fields of analysis. Based on a comparative perspective of different country experiences, the book tries to portray the current state of the art and depicts a realistic picture of the key issues of firm dynamics using new data and new methodologies. The use of micro data and the treatment of new econometric methods are cutting edge, and each chapter carries out a clear and extensive discussion of the dataset employed and of the econometric methods and other statistical tools adopted to analyse these data. Part I introduces the main topic of the book. Two broad and extensive surveys make up this section. One deals with the empirical literature on entrepreneurship (microeconomic determinants of new firm formation, ex-ante characteristics and post-entry firm performance). The second chapter in this section deals with the theoretical literature on the size distribution of firms, tracing its evolution and extension beyond the simple Gibrat’s model in favour of standard maximizing models with stochastic elements, which allow introducing economic forces and market imperfections.